Income tax cut eyed to spur buying

A House subcommittee tasked to review the government budget is eyeing a one percent across-the-board cut on personal income tax in the Northern Marianas in an effort to lift people’s purchasing power and stir local business activity.

The proposal will not have a major impact on revenue collections but may trigger a significant raise in business gross receipt tax (BGRT) because of its multiplier effect on the NMI economy, according to officials.

Rep. Manuel A. Tenorio, chair of the Fiscal Law Review subcommittee of the House Ways and Means Committee, said the panel is studying the possibility of granting the tax relief in view of the worsening economic crisis on the island.

“It will be good to give people more purchasing power and this will of course go back in the form of business taxes to the government,” he told in an interview.

Members of the subcommittee, which was created early this month to tackle administration requests for action on some laws seen to impact on government funds, have expressed approval on the plan, Tenorio said.

They are expected to come up with a package of proposals for legislation in the next few weeks to help Gov. Pedro P. Tenorio deal with the worst crisis to hit the Northern Marianas in years.

Finance officials earlier have anticipated close to $104 million in income tax collections for 1999, down by 16 percent from initial estimate of $124.21 million.

The downward projection has been largely a result of the closure of more than 1,000 business establishments and the double-digit drop in tourists arrivals to the island.

The Northern Marianas is reeling from the fallout of the year-long financial turmoil and economic upheaval in Asia, its main tourism market and source of investments.

Although they are still reviewing potential effect of the one percent reduction on government coffers, Tenorio maintained the panel is weighing the benefits of the move to the business community.

“We want to put the money into the people’s pocket so that they will have more purchasing power,” he explained. “The one percent cut on personal income tax is not going to impact too much on government but it will offset the revenue loss.”

The representative pointed out the government can expect revenues to come from BGRT since people will have additional funds to spend on consumer items and other expenditures.

“I hope people will do that like spending money to buy,” Tenorio said, adding the effect would translate into more income for businesses eager to attract more customers.