New tax incentives get broad support

Despite questionable provisions, a legislative proposal granting tax exemptions to certain businesses that meet a set of criteria drew wide support from both government and private sectors at a public hearing conducted yesterday by the House Ways and Means Committee.

Called the Qualifying Tax Certificate Program, the measure is sponsored by Rep. Heinz S. Hofschneider to assist the business community in dealing with the current economic crisis through a package of incentives it is seeking.

But several departments and agencies as well as business organizations called for refinement of the bill, citing several provisions that should be amended to remain consistent with existing laws as well as to adapt to the present economic situation on the island.

Hofschneider underscored its significance in creating jobs for local people, saying this is a step to erase perception of the indigenous people as “lazy and uneducated” workers.

“It’s an open opportunity for outside investors to come in whereby our people benefit through employment,” he told government officials and business leaders.

Patterned after Guam, the program seeks to empower the Commonwealth Development Authority to oversee its functions as it hinges on compliance to a set of requirements and standards spelled out in the bill and which CDA must follow as criteria in granting the package to any company on the island.

Among these are preference to applicants whose company has a 51 percent stake from an owner who is both CNMI resident and U.S. citizen, and whose 40 percent total workforce in the non-managerial positions are from the local labor pool.

Likewise, their resident employees must not receive less than the prevailing wage rate package, including benefits such as housing, food allowance and medical care, which are extended to nonresident workers, and that their workhours are not reduced so as to accommodate an alien employee.

Hofschneider’s proposal covers a period of 10 years and offers a separate package of incentives for hotels and other tourist-related businesses, like exemptions from business gross revenue tax and excise import tax.

“No one is left out of the loop if they meet the minimum criteria,” the representative explained.

Fine-tuning of the bill is necessary: But Finance Sec. Lucy DLG. Nielsen proposed several amendments to the bill, foremost of which is to allow the Department of Finance to work jointly with CDA in implementing the program, specifically on the tax aspect.

Acting Attorney General Maya B. Kara likewise questioned the blanket authority given to CDA, noting that it would be unconstitutional to delegate the tax exemption regulations to the agency alone.

The income tax rebate of up to 75 percent provided in the proposal, however, would only complicate the present taxation system in the Commonwealth, according to assistant AG Mary P. Williamson.

She said that this “does not conform to the existing tax rebate structure which in some cases is more generous in providing up to ninety (90) percent tax rebate.”

Bob Jones, chairman of the Task Force on Free Trade Zone, hailed the incentives to be offered to investors, although they fall short of the benefits under the Guam program.

“We are very much encouraged that this legislation is before you,” he told the Ways and Means Committee. “We have to work on as many angles as we can to improve the economy.”

In a written comment, CDA Chairman Juan S. Tenorio threw support behind the move in attracting large-scale investments into the Northern Marianas.

“The Commonwealth Government would be giving the investor something which costs the CNMI nothing,” he said, adding the island would be in “a position to direct the tailoring of benefits to fit the needs” of the local people.

Ways and Means Committee chair Rep. Karl T. Reyes said they would consider the recommendations from both public and private sectors when they submit the bill to the full body for voting.

“We will not rush this legislation… Whatever we lose, we have to gain double. On that approach, we will review the bill,” he said.

Commerce Sec. Frankie B. Villanueva and CDA Executive Director Marylou S. Ada also backed the measure, which came on the heels of the proposed creation of free trade zones on the island.

The twin measures are envisioned by the CNMI government to attract foreign investments as well as broaden the economic base of the island, whose tourism and garment industries have been impacted by the region-wide recession in Asia.