TO BOOST REVENUES Gov’t. prodded to impose new taxes and cut rebates

Posted on Jun 18 1999

The government must impose new taxes and slash rebates to raise badly-needed revenues for its infrastructure development in the next few years as part of a comprehensive economic strategy for the Northern Marianas, according to a report to be released next month.

While the study has recommended ways to meet the demand, it has also criticized the government for not spending a substantial share of its budget for the infrastructure needs as well as maintenance of existing facilities of the island.

“The CNMI government has done little to provide the funding necessary for capital improvements, choosing instead to dedicate revenues to increasing the personnel budget of many government agencies,” the report said.

Prepared by various business leaders, government officials and professionals, the report is based on the findings from last March’s economic summit held on Saipan, which aims to chart the course of CNMI’s future into the next millennium.

They believe adequate infrastructure will be a key factor in determining the type of industries that can thrive on the island with the expected pullout of the garment factories when global trade barriers are brought down in 2005.

Although tourism and other investments on the islands, like hotels and resorts, have usually incorporated their infrastructure needs into the entire project, it should not deter public officials from taking initiative to develop facilities such as sewer, water, power and road.

Likewise, other infrastructure requirements supporting economic development, including public schools, hospitals, public safety facilities as well as air and sea ports should be the main priority of the government if it wants new investors to set up their businesses here.

Federal construction grants provided under the Covenant must not be the only source of funding for public infrastructure and the government should step up efforts to identify local revenues to finance these projects, the report said.

Unlike other U.S. insular areas that also depend on federal doleouts for facility improvement, but have imposed taxes to finance these projects, the CNMI has opted to take the other route — by keeping taxes low.

The island has recently set in motion spending of about $154 million for its massive infrastructure program within the next three years, but most of the money could not be used due to CNMI’s inability to meet the matching requirement on federal grants.

New taxes needed: Economic analysts stressed the need to increase taxes and impose fees on the island as its only avenue to develop its infrastructure and eventually, to promote business growth as well as to raise the standard of living for its people.

“Recommendations for improving the infrastructure situation in the CNMI will ultimately require changing much of what makes the CNMI attractive to many residents and investors,” they explained.

“It will involve imposing new taxes and user fees and a break from the ‘hand-out’ mindset established, in large part by the Trust Territory government… and up until the point in which the CNMI became a Commonwealth.”

At present, the two percent developer’s infrastructure tax assessed on each development has been the only source of construction funds of the government which always end up short of the actual needs of the island.

The report suggested that sales taxes or property taxes be legislated to assist in raising revenues, even altering the rebate schedule currently in effect on income taxes despite its impact on the incentives offered by the CNMI for investors and residents.

For public officials, this may mean “political suicide” particularly taxes on properties and real estate which are mostly in the hands of powerful local families and businessmen.

“These taxes must be fair and not burden any one particular segment of the community in the absence of clear evidence suggesting that segment is using a disproportionate amount of infrastructure,” the analysis pointed out.

But it also underscored good infrastructure planning by the government to map out areas of development. This will integrate facilities, financing and social costs.

Noting the propensity of the government to deal only with crisis situation, the report said a comprehensive management must create a “vision” on what the locals want and where they want head in the next 20 years.

“Infrastructure expenditures must be made where they will provide the greatest benefit for the greatest number of people or where they will encourage new economic development,” it added.

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