Bill filed to impose tax increase from construction activities

Rep. Ralph N. Yumul (Ind-Saipan) introduced yesterday a bill that seeks to impose an additional 3% tax to the yearly gross revenue that is directly derived from construction activities in excess of $250,000 for a period of three years.

At the House of Representatives session, Yumul noted that this additional tax does not apply to construction of residential homes.

In recent years, numerous construction projects have taken place in the CNMI.

Several other representatives co-sponsored the legislation, House Bill 23-74.

House of Representatives Speaker Edmund S. Villagomez (Ind-Saipan) referred the legislation to Ways and Means Committee chaired by Yumul.

Yumul stated in the legislation that licensed construction contractors are currently paying a tax rate between 2.5% and 5% as set forth in the Commonwealth Code.

He acknowledged that an additional tax may increase the costs of construction for commercial projects and possibly residential projects as contractors attempt to pass on the increased costs to consumers.

Yumul said they are also aware that general contractors often hire subcontractors on commercial projects.

He said relevant to this bill, there are legitimate issues with respect to double taxation.

The lawmaker said there is also a valid concern that this legislation may increase the final costs that are charged to consumers.

He said these concerns, raised by the Department of Finance and the Office of the Attorney General that call to attention to these potential adverse impacts, are valid.

Yumul said with respect to tax impacts and other considerations, they find that there will never be a good time to raise taxes.

He said this proposed 3% tax increase is inapplicable to the construction contractor as a corporate entity or taxpayer per se.

Yumul said the tax increase is however applicable to the revenue that is directly derived from construction activities that are over the $250,000 threshold.

He said in addition, in order to mitigate any adverse effects on the end prices that may be passed along to the consumers, this bill provides a non-refundable tax credit that shall be available for new taxes imposed pursuant to this legislation.

The lawmaker also underscored the need to establish a Sunset Clause in the bill for a period of three years to lessen the financial burden imposed by such additional tax.

Rep. Ralph N. Yumul