Fono approves Admin’s corporate tax reduction bill
The Fono has officially approved an Administration bill, which amends three provisions of local tax laws — including the current corporate tax rate that ASG Treasurer Uelinitone Tonumaipea told lawmakers is the “second” highest rate in the world.
The Fono’s final approval came last week Tuesday when the House unanimously approved the Senate version of the bill that senators approved more than a week ago. The bill has since been enrolled in the Fono journal and forwarded to the governor for his signature.
Local law states that American Samoa’s maximum tax rate for corporate income taxes on income in excess of $650,000 per annum is currently 44%. And the bill now deletes this provision.
Deleting this provision leaves the current maximum tax rate of 34% for corporate income taxes on income in excess of $75,000.
Gov. Lolo Matalasi Moliga has said that reducing the maximum rate brings American Samoa more in line with US rates. “We believe this can spur additional private investment and business growth in American Samoa,” he said.
Testifying before a Senate committee more than a week ago, Tonumaipea said American Samoa currently ranked the second highest in the world with the maximum corporate tax rate and reducing the rate is an effort to encourage businesses to invest here and this will result in more revenue for the territory.
The Corporate tax rate surfaced briefly during last Wednesday’s Fono Joint Budget Committee hearing for the American Samoa Visitors Bureau’s fiscal year 2017 budget, when board chairman Tom Drabble told the committee that there is a “very serious problem” with the local tax situation.
However, Joint Budget Committee co-chair Sen. Laolagi F.S. Vaeao interjected quickly and explained to Drabble that the Senate had already passed an administration bill lowering the corporate tax from 44% to 34%.
“You’ve got to give the government some credit. Stay away from pointing fingers here and there,” Laolagi informed Drabble. “So please leave that alone.” (Drabble, a Chamber member, is a long time local businessman.)
Chamber president Francine Gaisoa also raised the corporate tax briefly during her keynote address last Friday during the ASG Workforce Day ceremony suggesting the tax rate be reduced to 20%, which she says is a “nice number instead of 44%.”
The high tax rate was an issue that former Chamber of Commerce chairman David Robinson over the years had urged the previous Togiola Administration and the current Lolo Administration to lower to attract new businesses and investors.
There was also a tax issue on the policy reform document in 2008 by the Governor’s Economic Advisory Council, which was co chaired by Robinson during the Togiola Administration. The council had recommended reducing taxes from 44% to 35% for the first year and then three or four years later, further reducing it down to 25%.
Provisions of local law state that no business license may be issued unless the applicant has paid all fees and debts, “except taxes” that he/she may owe the government. The bill deletes the “except taxes”, and Tonumaipea informed senators that this would help the Tax Office collect taxes from businesses that have failed to pay taxes.
Lolo told lawmakers early last month that by “deleting the ‘taxes’ exemption, it will enhance tax office compliance and their ability to timely collect business income taxes.”
And by deleting the “except taxes” provision, the Tax Office can then negotiate a “payment plan” with the business owing taxes before issuing the business license, he said.
According to the bill’s preamble since the year 2000, the amount of contributions to retirement savings that are deductible from income has increased under the US Internal Revenue Code (IRC) from a basic $2,000 per individual taxpayer to $5,500. However, local law remained the same at $2,000 until now.
The amendment means that local law — when it comes to contributions to retirement plans — will mirror current IRC law as well as anytime the IRC rate changes in any tax year.