Tax cuts eyed to draw trade-zone investments

A planned free trade zone in the Northern Marianas may have to offer lower rates to potential investors as an incentive, but will not totally eliminate payment of taxes to the government, according to a member of a subcommittee tasked to study the proposal.

Rep. Karl T. Reyes, who also chairs the House Ways and Means Committee, said the business gross receipt tax and the excise tax should be cut as part of the effort to encourage investments in the proposed special economic site.

He said, however, the BGR must not be waived because there is no other means for the CNMI government to generate revenues for its operations if it forges ahead with the plan.

The BGR is equivalent to up to five percent of the gross income of the business which is paid to the local government every year. The excise tax also amounts to a maximum of five percent, but the CNMI waives payment for machines and equipment that are used for manufacturing products for export.

Reyes said reduction in the current rates will help draw new investments into the free trade zone, citing the incentives given by other countries in their special economic zones, such as the Philippines and Antigua and Barbados in the central America.

“For business gross receipt tax, I would say that it should be lowered only and not completely eliminated because without that, I don’t see any taxes that the government can impose. That’s all we have,” he said in an interview yesterday.

The legislator added that business license, lease on property and utility rates can also be slashed as part of the incentive package. “Something can be developed, like if they hire so many employees and pay them minimum wage, you can give certain leeway in payment of taxes for so many years,” he explained.

According to a draft of the proposed legislation under review by the CNMI Subcommittee on Free Trade Zone, payment of local taxes and levies such as import of goods, raw materials and machinery; as well as income taxes and export taxes will be eliminated to encourage investments in the site.

The panel, formed out of the Economic Recovery and Revitalization Task Force created by Gov. Pedro P. Tenorio last May, is expected to deliberate on the proposal patterned after the Philippine and Antigua/Barbuda models when it meets tomorrow, Reyes said.

“All these angles we will have to look at so we can provide the true incentive package,” he added.

The island government is pinning its hope on the establishment of the free trade area to spur the local economy which is reeling from the fallout of the prolonged recession in Asia, its main tourism market and source of large foreign investments.