Local company execs voice opposition to proposed business tax
Haleck Enterprise Inc., president and chief executive officer Avamua Dave Haleck along with Neil’s ACE Home Center president and chief executive officer Ngaire Ho Ching have voiced opposition to an administration proposal establishing a 1% alternative minimum business tax (AMBT) on gross receipts.
The pair argued, during a Senate Budget and Appropriations Committee hearing last Thursday, that the AMBT proposal is punishing honest businesses like theirs that honestly record and file taxes with the government year after year.
ASG Revenue Tax Force officials have publicly stated that only 13% of businesses pay corporate taxes while 87% don’t. The officials, along with the governor, have claimed that some businesses use loop holes in current law as well as clever bookkeeping tactics to avoid paying taxes every year.
“We...take the view that the AMBT punishes businesses that file honest [tax] returns,” said Avamua in both his verbal testimony to the Senate committee and a written letter to lawmakers. Avamua, is also president and CEO of Ottoville Investments One, Inc. - Tradewinds Hotel and represented all other entities within the Haleck family of companies.
While he acknowledged that the AMBT is intended to collect corporate business taxes fairly from all corporations, Avamua said the measure will have a negative effect on the business community and the result will be to reduce the number of active businesses and further depress employment and the economy.
Additionally, the AMBT penalizes businesses that suffer legitimate losses during recessionary business cycles, natural disasters, and government regulations.
“As experienced in the recent past, a global recession can negatively impact a business’ bottom line for years,” he said. “As businesses attempt to remain viable and save jobs, the AMBT threatens the existence of the business by reducing badly needed cash flow which will require business expense reductions including potential staff reductions.”
He pointed out that the business community is also faced with increased labor costs due to increases in minimum wages. And having to meet increased labor costs and pay AMBT will force businesses to reduce operating expenses in order to remain profitable. Furthermore, any increase in expenses, whether it be labor or taxation, can adversely affect a business with low margins, such as restaurants or retailers.
“The result could force a business owner to cut losses and close down,” said Avamua, who notes that the AMBT, which impacts a business in the third year of existence, will add a financial burden as a business attempts to expand or enter into new markets.
“With the additional tax burden, businesses may be opposed to expansion or developing new operations which in turn depresses the economy and reduces employment opportunities,” he explained.
He reiterated that the effect of AMBT on the business is reduced margins which necessitates expense reductions which in all likelihood results in reducing staff. “Not only does the business suffer but the government revenues will suffer,” he said.
“Reduced business activities results in reduced corporate incomes taxes, and reduced staff results in less citizen participation in the labor force which will reduce personal income tax collections,” he said.
As previously reported by Samoa News, based on a Sept. 5th letter to “government leaders”, Ho Ching said their company does not support the AMBT “for the simple reason that a business that has an honest loss would now be forced to pay a minimum 1% tax on their gross receipts, driving them further in debt and possibly out of business.”
Additionally, implementing the AMBT will discourage new business development and discourage new entrepreneurs.
She called on the Tax Office to utilize the tax audit process if businesses are suspected of filing fraudulent taxes, and the Tax Office should monitor suspected businesses if they file losses year after year, and perform audits to ensure their information is correct.
Durning the Senate hearing, Ho Ching gave similar testimony and reiterated her call for the Tax Office to use the audit process in order to identify those businesses not honest in filing taxes.
Both Ho Ching and Avamua stressed during the hearing that their respective companies are honest in filing their taxes, which helps the government.
Ho Ching asked senators, who are “our government leaders”, to ensure the AMBT and other tax proposals by the administration are fair for everyone. “And ultimately, be affordable for the consumers to absorb and support,” she said.
(See yesterday’s Samoa News edition on Avamua and Ho Ching's reactions to the 7% sales tax and 5% excise tax).
A representative for locally owned Aveina Bros., said the company is against the sales tax. "We believe that not everybody will be paying this tax”. And from discussions with the Aveina owners, the representative said the company is open to discussing a possible increase in the 5% excise tax. The company’s representative gave a very brief testimony, which lasted about a minute.
The Senate and Budget Appropriations Committee chairman Magalei Logovi’i, at the outset of the hearing, told the witnesses to be honest with their testimonies, which are important when senators make the final decision on the revenue measures.
He acknowledged that he agrees with witness testimonies that if a business closes down, it means less money for government. He also said that “ it's a cycle” - when the government adds a new tax, the business will pass that on to the consumer, who in the end will be burdened.
Magalei, a former ASG Treasurer, commended the three businesses, which are locally based and owned by Samoans, for their many years of serving the territory. These businesses have survived despite challenging times, he said, adding that if there is a recession, these businesses won’t leave because they are Samoan owned companies.