Top retailers suggest increasing excise tax in lieu of sales tax
Top executives of Haleck Enterprises and Neil’s ACE Home Center have suggested increasing the 5% excise tax up by 2% or 3%, instead of implementing a 7% sales tax, which they say is too high and would require businesses to spend additional money to upgrade computer software to effectively collect a sales tax , and hire additional personnel.
The comments were made at last Thursday’ Senate Budget and Appropriations Committee hearing on three administration tax bills.
Private sector witnesses were Avamua Dave Haleck, president/CEO of Haleck Enterprises Inc. and Ottoville Investments One, Inc. - Tradewinds Hotel; Neil’s ACE Home Center president, Ngaire Ho Ching and store manager, Nadine Solofa; and a representative of Aveina Bros.
The most serious of proposed taxes to impact consumers is the sales tax and so far, members of the private sector who have written to lawmakers or testified in the Senate all share the same views.
Specific points outlined in Avamua’s letter were similar to those addressed in his Samoan remarks, saying that his family owned companies, which includes Haleck Motors, support the implementation of a sale tax, but 7% is too high.
“If you look at businesses that trade in high value inventories such as vehicle dealerships, the customers would be paying, in additional to vehicle cost, 10% customs duty and the proposed sales tax,” he said.
He added that while most retailers pass the sales tax on to the consumer, “We feel the consumer would not be able to afford a new vehicle” due to the 10% customs duty and a sales tax on top of that.
According to Avamua, if their company brings in a brand new car - at $30,000 - the duty of 10% is paid. The company will then add on other costs such as freight, which will further increase the price.
But add on a sales tax, and that will hike the retail price even higher, making it unattractive to the buyer, he said, adding that their customers may opt to purchase vehicles from the mainland and shipping them to the territory, whereby they will not be subjected to the sales tax.
“Our business as well as competing businesses would suffer this loss of sales,” he said, and shared what he describes as “inflationary effects”.
“The rising prices of goods would see consumer demand seek alternative substitutes from retailers which could very well result in the importation of goods of lesser quality and may not necessarily meet standards we are accustomed to,” he continued.
According to Avamua, the other alternative would see the stifling of consumer purchases - meaning a decline in the level of consumption because consumers refrain from purchasing at pre-sales tax level. “This would result in minimal gains to government revenues from the sales tax.”
Avamua said that for businesses, there would be added costs of recording the receipt of the sales tax and its payment to the government. “The cost would arise in the form of staffing, software, and training of personnel so sales tax reports and remittances are provided accurately to the government.”
As previously reported by Samoa News, Neil’s ACE Home Center has called for specific information to be disseminated to the public and business community on how the sales tax will be collected. Some businesses have more advance cash register computer systems than others, so the 7% separation for these businesses are easily identified.
However, for smaller businesses, it will be difficult to track, said Ho Ching in both her written and verbal testimony before the Senate committee. “As a business owner, I need to know this will be fair for everyone, with specific collection methods and processes in place that gives accountability for all businesses regardless of size,” she said.
She recommends that the 7% be gradually rolled out for consumers, saying the 7% is too high and suggesting 2% as a start, ensuring the collection method works.
“If we already have problems with businesses with questionable and/or fraudulent reporting, then charging the consumer a sales tax is opening up avenues for temptation of additional income for said businesses that will still not be reported correctly,” she added.
Ho Ching agrees with Haleck Enterprise, G.H.C Reid, and TMO to apply the sales tax to online goods - including building materials, lumber, tiles and appliances - imported into the territory.
5% EXCISE TAXES
Avamua commended the government for phasing out the 5% excise tax over a period of time, but “we believe that an immediate repeal of the entire 5% excise tax is more conducive in encouraging consumer spending while a modest sales tax is put in place.”
Otherwise, he said, consumers will have the financial burden of paying the 5% excise tax that remains in force, and paying the sales tax. He said it may be economical for ASG to request the Fono to hike the 5% excise tax by 2%, saying that staffing is already in place at Customs to collect the excise tax and no more staffing would be required and no sophisticated computer system needs to be purchased to keep track of a sales tax.
Ho Ching said their company feels that the sales tax needs to replace the current 5% excise tax, and not be an additional tax on top of it. She offered an option, in which the government review the 5% excise tax and raise it to 7% or 8% as the government has a system already in place to collect this tax at the Port. “There would be minimal changes to a process we already use,” she said.
According to the administration’s proposal, the 5% miscellaneous tax will gradually phase out over a five-year period beginning Jan. 1, 2019 while the sales tax is effective Jan, 1, 2018. And this has prompted concerns from the territory’s major businesses, who argue that consumers will be paying 12% in taxes for calendar year 2018 as the 5% excise tax will be passed on to consumers.
Responding to questions from Sen. Nuanuaolefeagaiga Saoluaga Nua on the 5% excise tax being gradually phased out over a five-year period, starting in calender year 2019, Avamua said the 5-year period is too long and suggested phasing it out in two or three years once the sales tax is approved.
Nuanuaolefeagaiga asked the witnesses if they had any suggestions on a best method to collect the sales tax, to which Avamua responded, “to make it easy, no sales tax” but hike the 5% excise tax because the collection process is already in place at Port by Customs.
Avamua recalled public statements by ASG Treasury that they will hire new staff and bring in a new software system to track the sales tax. He said businesses will have to do the same - hire staff and upgrade their computer systems.
He reiterated that “we have a system in place” at the Port to collect the excise tax.
Responding to Nuanuaolefeagaiga’s question on lowering the sales tax percentage, Avamua pointed out that no matter the percentage of the sales tax, businesses will still need to upgrade their computer system - including the purchase of new software - and hire staff.
Sen. Muagututi’a T. Tauoa said he is concerned with all the taxes being proposed, which will result in businesses increasing retail prices which would then make it unaffordable for people to buy a new car or pisupo.
(See tomorrow’s edition on testimonies from Avamua and Ho Ching on the proposed 1% alternative minimum business tax, as well as brief testimony from Aveina’s representative.