Treasurer proposes a Gross Receipt Tax on business
The Treasury Department is proposing a new tax revenue generation approach that has successfully been implemented in 26 US States and territories over the past several years and it’s called Gross Receipt Tax (GRT).
Treasurer Falema'o Dr. Phil Pili made a presentation explaining to cabinet members the GRT during the recent cabinet meeting.
GRT is a tax on the total gross revenues of a business, regardless of the source of revenue of a business or net income, and is similar to a sales tax but levied only on suppliers and merchants.
The treasurer explained the GRT approach will reform the current Corporate Tax Rate structure by initially reducing it by 30% and gradually reducing it over a three-year period until all Corporate Taxes are completely eliminated and this will void any need for Corporate Tax Exemptions for American Samoa.
“A final part of the GRT plan is to replace the outdated 2000 Tax Table with a current US Tax Table for use by all American Samoa residents.” Falema’o said.
The territory currently has one of the highest Corporate Tax rates in the world (44%) far exceeding the US Federal Corporate Rate minimum of 35% Falema'o said that with an initial reduction in Corporate Tax Rates and eventual complete elimination of Corporate Taxes, within three years, it should attract more businesses to the territory and stimulate the economy.
Pointing to the final part of the GRT plan, he said, “With the repeal of the current 2% Wage Tax law, $3.5 million will be infused back into wages earners' pockets, an increase in disposable dollars to the wage earners which would have an immediate positive impact on the economy.”
The Treasurer explained, “By using a current US Tax Table instead of the outdated 2000 US tax table, tax benefits will be more equitably distributed and provide another impact on the economy of American Samoa."
(It is not known if Falema’o is referring to the 2% tax currently levied specifically for the LBJ Medical Center, or if he is referencing a reduction in the 4% local tax.)
“Besides the benefits of the elimination of Corporate and Wage Taxes and the update of the US Current Tax Table, the most significant benefit will come from the GRT forecasted revenues," Falema'o said.
“Based on conservative estimates, GRT would generate additional revenues of $35 and $40 million. The additional revenue would be used to improve healthcare, improve governance, fiscal accountability, improve general infrastructure, eliminate ASG debt obligations and improve financial solvency,” he stated.
The Treasurer explained historically, corporate tax revenue collections in the Territory have been very unsuccessful and the results have been astronomically low and it will continue in this same debilitating manner unless a major change to the tax structure is implemented immediately.
He pointed out that in 2011, these collections were only 1.5% of total gross receipts on over $800 million total receipts (or only a mere $12 million in taxes), while in 2011, 80% of corporations that paid taxes paid less than 1% of gross receipts to corporate taxes, and 50% of the corporations did not pay any corporate taxes.
Falema’o said too many businesses show losses on their tax returns, thus paying few, if any taxes, and many of the territory’s largest businesses are exempt from paying Corporate taxes. This includes semi autonomous government agencies and authorities like ASPA, ASTCA and the Shipyard.
The Treasurer said in order to effectively realize the results of GRT, a recommended initial tax rate of 5% on all gross receipts should be imposed, and this will generate $35-$40 million in revenue annually. The calculation is based on $800 million gross receipts from all businesses during the first year of implementation (except certain tax exempt companies.)
He said tax proceeds will be received monthly and tax calculation is simple, and collections will improve.
All the business in the territory will pay their fair share of taxes and allowable deductions on business tax returns, Falema’o noted. “The GRT approach provides a vertical integration of available resources that lends to a more dynamic economy — an economy stimulated by economic reality, not just a philosophical idea, that business drives the economy which in turn provides resources to administer the fiscal affairs of the territory.”
He added the GRT will restore the confidence of the business community and the people — that all businesses operate under the mantra, “equal share of taxation”.
Also, local residents will benefit from the updated individual tax structure and regain fiscal confidence to consume greater resources that will stimulate the economy.
Falema’o stated that even non-profit organizations would not be exempted from the GRT, only religious groups.
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