Chamber opposes two proposed tax measures

The Saipan Chamber of Commerce is urging CNMI House lawmakers to reject legislation aimed at extending the term of a now expired program that gave amnesty to delinquent taxpayers and a bill to providing a tax incentive that it says the private sector might abuse.

In two June 25 letters to House Ways and Means Committee chair Rep. Ray N. Yumul (R-Saipan), Chamber president James Arenovski says HB 16-91, introduced by Rep. Justo S. Quitugua (D-Saipan), and HB 16-87, offered by Rep. Oscar Babauta (C-Saipan) could ultimately hinder the efforts of local authorities to collect taxes.

Proponents of 16-91—a bill establishing a tax incentive for those who make donations to the government aimed at improving public facilities—say it is critical for boosting the government’s ability to maintain public parks, beaches and playgrounds at a time when funding is scarce.

Yet the Chamber’s letter points to several key problems with the bill’s language, noting it could undermine the power of the Commonwealth’s elected officials to appropriate funds and that the criteria for gaining a tax break under the bill are vague.

Lawmakers should reject the bill, introduced in April, because the tax incentive it would create could be widely misused and decrease annual tax revenues, the Chamber’s letter says. Moreover, the Chamber says the bill could result in widespread abuse.

“By way of example, if five lawn care companies decided to cut the lawn at the public library every week, does it follow that the lawn at the public library needs to be cut five times each week?” the letter asks. “It does not, but regardless, under this bill, each of those five companies would be entitled to the tax credit for the provision of lawn care services—to the great detriment of other Commonwealth public facilities that are in need of cash, goods, or services.”

The government’s purchases in the private sector can also increase tax revenues, the letter says, while donations would not.

“In the simplest terms, the net effect of HB 16-91 would be a decrease in revenues and operating flexibility for the Commonwealth,” it concludes.

Meanwhile, the tax amnesty that HB-16-87 would provide tax dodgers a further incentive to continue evading payment, the chamber says.

HB-16-87 would renew a program that waived government penalties and interest for those who fail to pay local taxes as an incentive to settle those debts. The program expired through a sunset provision in 2001, yet the bill’s language notes the amnesty proved “highly successful” in helping collect late payments, adding that many did not take advantage of the program the first time it was available.

A second amnesty program would be “still the most cost-effective way for the government to collect tax revenue during these difficult economic times,” the bill says.

However, the bill gives tax evaders an unfair advantage that lets them skirt significant penalties, the Chamber’s letter says, and the solution to the government’s need for more tax revenue is stricter enforcement of tax codes, not another amnesty program.

.“Penalties are included in tax laws as a disincentive to those who might otherwise not report or underreport incomes,” the letter says. “Interest charges are included in the laws both as the same disincentive as well as to compensate the government for the costs associated with the lost use of those revenues over a period of time. We disagree that removing those disincentives is in the best long-term interests of the Commonwealth or our economy.”

Contrary to its intent, the letter says that the legislation actually would create an added reason to forego paying taxes, the letter adds. “The message this bill sends to the public is ‘Don’t come forward and admit to error or fraud and make appropriate amends in a timely manner—wait for the next amnesty period instead,” it says.

The committee recommended last month that HB 16-87 be shelved—meaning they will forego action on it—a sign it is unlikely to make any progress through the Legislature.