Private sector testifies before Fono on $10 Mil bill
Not unexpected, in a unified front, members of the private sector testified yesterday before the joint hearing by the House Budget and Appropriations and House Health/LBJ Hospital committee opposing the administration’s proposed tax hikes to fund the $10 million appropriation bill for the off island medical referral program.They referred to the sources of funding of the bill as ill advised and ill conceived ideas.
Business representatives who testified were Olivia C. Reid-Gillet, president of G.H.C. Reid and Company Ltd; Gary Blizzard, chief executive officer of Panamex Pacific Inc. - American Samoa; and the chairman of the local Chamber of Commerce. The witnesses also provided copies of written testimonies for committee members.
G.H.C. REID TESTIMONY
Reid-Gillet said local residents will be the ones who will bear the burden of all of these proposed increases and new taxes in the end. She said the bill is meant to provide funding for the referral program, but it will not collect the revenues it’s hoping to collect when businesses cannot sell their products and/or simply cannot keep their doors open.
“There was already incredible opposition to the LBJ fees being increased, but that’s exactly what passing this bill would do as well from another angle,” she points out.
Regarding the hike in excise for beer, she said this is a 32% increase and “this industry simply cannot sustain” it; therefore the proposed hikes will not produce the desired results.
“This proposed legislation would increase beer prices across the board significantly, to a minimum of $38.40 per case wholesale from the current $28 per case wholesale,” she said.
The proposed hike will put the wholesale case of Vailima at $38.40, while the retail price per case would be $49.92 she said.
Reid-Gillet also pointed out that besides the usual margins that retailers add to the wholesale prices, they most likely would increase their margins beyond the norm in a desperate attempt to account for the decrease in their sales volume due to the new pricing.
“According to our research, revenue collections for beer alone between 2005 and 2009 have declined by 38%. In 2005, beer revenue was $3.2 million but in 2009, these revenues had declined to$1.9 million,” she said. “We firmly believe that these numbers continue to decline as the aggregate costs of doing business continue to to escalate.”
She also points out that this would will result in a 20% reduction in the company’s workforce — from 50 to 40 employees — because “we simply wouldn’t be able to sustain the sales necessary to support a larger support team.”
Additionally, the “beverage industry is already heavily taxed dangerously close to a level where being in the beverage business is not profitable” and this bill “would only further discourage outside investors from investing in our territory with such high tax rates.”
The company president also noted that with these drastic hikes, it would undoubtedly encourage the illegal smuggling of beer into the territory, whereby ASG would not collect any tax at all. In all likelihood, retails stores would find ways to purchase from the military PX store.
Regarding the hike in business license fees, the new corporate franchise tax and the new 4% wage tax, Reid-Gillet said these taxes and fees will affect not only G.H.C. Reid but all of the Reid Group of companies, including Peter E. Reid Stevedoring, Samoa Motors Inc., SLC Manufacturing and Polynesian Shipping Services.
“Our business license fees would increase by approximately 305% across all of the companies and that is an astronomical increase that none of our companies can sustain,” she said, adding that in addition to personnel being laid off due to the proposed beer tax hike, “we’d have to lay off another 10% of our personnel across all of our companies to compensate for this increase.”
Speaking specifically about the new wage tax, Reid-Gillet said the lowest wage earners will have their take-home pay decreased by an average of $500 annually which they cannot afford.
She said local workers were given a “2% reprieve by the federal government” — through the reduction of deduction under the FICA tax — only for ASG to re-impose a new 2% wage tax onto local workers — and now this bill is proposing another 4% wage tax.
“How can anyone survive and provide properly for their families?” she asked. “...all of our employees simply cannot bear this further hardship on our families.”
Regarding the new corporate franchise tax, she said they would “increase our costs across the board by over $10,000.”
“How are we supposed to recover those costs? The only way is to pass them on to the customers” she added.
(A copy of her full testimony before the Senate committee can be found online at samoanews.com)
PANAMEX PACIFIC TESTIMONY
On the hike in beer tax, Blizzard said the cost increase passed on to customers will make it impossible for Panamex to continue to serve as a beer vendor and this will result in lost sales of $98,000 per year for Panamex and the territory. Losing these sales will cause the loss of one full-time employee’s position, he said.
Contrary to the plans intended purposes, revenue for ASG will actually decrease by $88,750 in lost excise taxes received from only one small vendor, he said adding that he can only project the losses associated with other vendors who all sell much more beer and wine than Panamex Pacific.
“We would also no longer pay fees as beer importer or wholesaler,” he said.
On the franchise corporate tax, he said this is another “ill conceived idea” and it will cause proposed businesses to rethink opening in American Samoa, causing loss of revenue and jobs, at a time when economic development is most important and necessary for the territory.
“My existing businesses will have to add a $2,000 expense. In addition, the increases in fees will add another $1,060 to expenses for just this one business. $3,060 may sound like a small amount of money; however, these increases are the amount of a full month’s profit for some periods,” he said.
Regarding the new wage tax, he said the bulk of the funding source will increase the payroll tax, effectively doubling the expense for every productive worker on island at a time when they are already stretched to the limit.
He also said that business license fee hikes will be passed on to everyone, resulting in a further business slowdown contributing to a worsening economic slowdown.
While funding the LBJ hospital is “of the utmost importance”, he said the “sources of funding are ill advised”.
He said everyone looks to businesses as the easy answer for more money but seldom reflect on the work that goes into making and keeping those businesses profitable.
“I would suggest that asking for more may cause you to lose what you already have,” he said. “Maybe the governor and his advisors have not been informed of the very tight profit margins that most of us are trying to continue to operate on during a devastating economic downturn.”
Samoa News will report tomorrow on testimony from the Chamber of Commerce, the local business organization who issued a news release several weeks ago opposing the funding sources for the bill.
Click on attachment to download full text of GHC Reid testimony.