Business tax bill raises questions from senators
ASG Revenue Task Force senior officials contend that an Administration proposal setting a 1% alternative minimum business tax (AMBT) ensures that all businesses subject to taxation in American Samoa will pay their fair share of taxes, to help with the government’s financial woes.
The AMBT, which becomes effective in tax year 2018 if approved by the Fono, was the subject of a hearing Monday by the Senate Budget an Appropriations Committee, whose chairman Sen. Magalei Logovi’i, asked several pointed questions to ensure that senators have a full understanding of the reasons behind the measure, which is one of the revenue bills submitted by the Lolo Administration.
Task force chairman, Attorney General Talauega Eleasalo Ale, said the measure ensures that all businesses pay their fair share of taxes to the government.
He shared with the committee what he had said in July to Fono leaders and some lawmakers, as well as early last month to the Chamber of Commerce. ASG Treasurer, Uelinitone Tonumaipe’a who is also the task force vice chairman, provided the same explanation, when asked later by the committee as to why the AMBT is being proposed.
According to the task force, over a 3-year period, on average, only 13% of corporate tax filers paid over 1% income tax of gross revenues, leaving 87% paying less than 1% on the adjusted gross income.
The AMBT bill is estimated to collect about $2.3 million annually and the estimate is based on historical data over a 3-year period.
During the Senate hearing, Talauega said that the AMBT bill, as well as other revenue measures submitted by the Administration, is a proposal - a request, and the Senate makes the final decision. He believes that the bill is good in that all businesses - especially those who have been operating in the territory for many years and paying less or no tax at all - will pay their fair share of taxes, thereby contributing to the government which is struggling financially.
Magalei responded that the Senate fully understands the financial woes faced by the government, but at the same time, does not want something that in the end will become burdensome to the public.
Magalei sought a clear explanation from the task force, as to which type of businesses will be required to pay the AMBT, saying that it's very important that senators fully understand the proposal, before making a decision on the bill
Talauega explained that the measure targets corporations or “other business entity subject to taxation in American Samoa” - which is also stated in the bill.
Magalei inquired if the proposal applies to farmers, who obtain business licenses in order to supply local produce for the federally funded school lunch program, and pay taxes at the end of the year.
Talauega responded that many of them file taxes as personal income at the end of the year, and therefore this measure does not apply to them.
“But once you are issued a business license, then you file business tax [return]. Isn’t that right?” Magalei asked, to which Tonumaipe’a replied that a sole proprietor, with a business license can file tax returns as individual income and this has happened over the years.
Responding to more questions from Magalei, the Treasurer explained that the AMBT is similar to the current 4% minimum individual tax paid by workers - with the business required to pay a 1% minimum on gross revenue.
Tonumaipe’a reiterated that many businesses don’t pay their “fair share of taxes”, while the government has spent money providing services to the private sector, such as improvement to infrastructure.
With such a large percentage, about 87% businesses not paying their fair share of corporate taxes, Sen. Misaalefua J. Hudson asked how the government is monitoring and enforcing the collection of taxes.
Tonumaipe’a explained that businesses usually file taxes quarterly, as well as annually, and that’s one way the government monitors business activities. ASG can also conduct an audit of a business, if there are questions when compared to government records, and Customs also has records of businesses that bring in goods.
Sen. Satele Galu Satele Sr., told the ASG witnesses that the lack of enforcement of current laws appears to be the problem. He said that with more new laws being proposed by the Administration, he wonders how the government will be able to fully enforce all laws, including the proposed AMBT.
He cited an example of what he believes is “lack of enforcement” of current law, with many foreigners being brought here to take up jobs, which are “not specialized skills” when these jobs can be filled by local residents.
For example, Satele said, at local stores, foreigners are cashiers, stock clerks, sweepers and current law allows foreigners to be employed in the territory for “special skill” jobs.
And by bringing in more foreigners, to take up jobs that can be filled by local residents, more money is going off island instead of staying in American Samoa, he said, and reiterated that he believes the issue at hand is the lack of enforcement of local laws.
Sen. Muagututia requested the task force to look at imposing a higher AMBT percentage to businesses operated by foreigners, which he claims are sending a lot of money off island instead of keeping it here. The task force responded that it's up to the Senate if they want to make such an amendment to the bill.
More questions arose as some senators wanted to know the specific types of businesses targeted by the AMBT bill, after Talauega repeated that all businesses subject to taxation in American Samoa will pay the proposed AMBT. “How about small mom & pop stores?” Sen. Fai’ivae Iuli Godinet asked.
Tonumaipe’a replied that corporations are targeted under the AMBT but not sole proprietors or partnerships. However, the bill exempts non-profit organizations, he said, adding that a new business operating within a two-year period, from the time it started, will not be subjected to the AMBT.
Some senators argued that corporations may end up changing their type of business set-up to a “sole proprietor” or partnership just to avoid paying the AMBT.
Magalei added that American Samoa is trying to attract new businesses and investors but this new mandatory 1% on gross revenue could prevent them from looking to the territory.
Misa suggested that the government hire a comptroller to help ASG with the difficult task it faces with the enforcement of current laws, as well as collections. He asked the task force to relay his message to the governor.
Towards the end of the hearing, Magalei said the committee will call another hearing soon, to hear testimony from the private sector.
In his parting remarks, Talauega said that if the measure is fully approved by the Fono without any amendments, the AMBT affects a corporation or other business entity subject to taxation in American Samoa. And he sees no problem in the language of the bill, as submitted by the Administration.