Before he left left last night for a previously scheduled meeting, Rep. Larry Sanitoa said that the government will not be able to collect any revenues from the proposed excise tax hikes on beer, alcohol and tobacco to fund the $10 million appropriation bill for LBJ Medical Center’s off-island medical referral program.

The House approved last Thursday in second reading the bill, including amendments which deleted the new 4% wage tax and reduced the excise tax on alcohol, beer and tobacco. There was also a reduction in the corporate franchise tax.

The bill goes through third and final reading today and it’s expected to be approved by a majority House vote.

At last Thursday’s vote in second reading, Sanitoa was among the four lawmakers who voted against the bill. He said before leaving last night that voting against raising the excise tax on alcohol and tobacco “stems from my lack of confidence that the projected revenues ASG expects to collect will actually be met.”

“Based on review of government reports, including testimonies from government officials on revenue collections, coupled with sales projections from the local businesses in the beverage industry — I am concerned that the negative impact the businesses foresee with implementation of this bill will result in reduced sales —resulting in less revenues to be taxed,” he said.

“I understand the predicament facing LBJ, and as law makers we feel compelled to do our part to enact legislation with the intent to increase revenues to support it,” he said. “However, we also have an obligation to those we serve in our respective districts and it is our fiduciary duty to consider the long term ramifications this legislation will have on the residents of our territory and its already fragile and weakened economy.”

Sanitoa said the government is having problems collecting current excise taxes, based on testimony by ASG Treasurer Magalei Logovi’i last week during a House committee hearing on the bill for the LBJ.

Logovi’i confirmed during the hearing that ASG had to use the General Fund for about five months in the last fiscal year to come with up monthly payments for the $20 million loan from the ASG Retirement Fund due to a drop in the excise taxes for the loan repayment.

House Vice Speaker Talia Fa’afetai Iaulualo asked Magalei for a status of the loan repayment, which is funded with certain percentage of the current excise taxes on cigarettes, alcohol and beer as well as other fees.

 He wanted to know if there was a shortfall in excise tax collection in FY 2011 to cover loan payments — because according to ASG reports, there is a shortfall and the hike in excise tax for beer, alcohol and tobacco is also used as a funding source for the $10 million appropriation.

Magalei responded that for about five months, there was not enough revenue from the excise tax to cover payment, so the government used money from the General Fund to ensure that ASG did not default on any payments.

No one from the committee asked for the total amount of the general fund used, or if any money in the general fund was used during the current fiscal year 2012 to cover the loan payment.

The ASG Treasuer told lawmakers that the goal is to make sure ASG does not default on any payment because if that happens, the Retirement Fund would then take possession of other revenues and ASG assets used as collateral for the loan.

DOMINO EFFECT

Sanitoa said that despite the intent of the bill to increase revenues from a higher excise tax, inevitably wholesalers will have to impose a price increase and pass that on to retailers who in turn pass it on to consumers, he pointed out.

“The domino effect is that product demand will decrease and that will affect the projected revenues which the tax calculations were based upon. In fact, most likely some store owners will spread costs of taxes across to all products,” he continued.

“Hence, moving forward with this bill will also pose the unfavorable effect of a black market for alcohol and tobacco as small businesses and even individuals will resort to smuggling items into the Territory to avoid the 250% proposed excise tax,” he said.

According to the Tualauta lawmaker, small “Mom & Pop” stores would find means to purchase from the local military exchange (the PX), whose imports are not subject to any import duties.

“Most importantly,  when sales drop for local businesses, owners would be forced to look at ways to reduce their operating costs,” he noted. “Even more detrimental to our economy is when the local businesses lay off their workers to remain in business. The rise in unemployment further impacts the taxes paid to our government when there is less income to be taxed.”

“In the long term, the beverage industry sales will ultimately decline, making it unprofitable for businesses to continue in this industry,” he said. “Needless to mention this is contradictory to stimulating our economy if outside investors are discouraged from considering American Samoa for business opportunities due to higher tax rates imposed by the government.”