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Senate unanimously votes to increase the tobacco excise tax, reduce wage tax

Sen. Magalei Logovi’i

Pago Pago, AMERICA SAMOA — In a unanimous vote of 16-0, the Senate approved on Tuesday this week in third and final reading a Senate bill which seeks to increase the tobacco excise tax by 3 cents — to help fund LBJ Medical Center operations — and reduce to 1% the current 2% wage tax, that is paid by all wage earners in the territory.

The Senate decision followed two separate hearings and a lengthy committee discussion last week Thursday, where two main issues became the focus of debate.

Several senators sought to repeal the 2% wage tax, arguing that wage earners have been carrying this tax-burden far too long and it’s time to remove it from the law.

A few senators suggested adding on another 3 cents — hiking the proposed tax to 6 cents to be paid by smokers, who enjoy such unhealthy behavior and increase health care costs. In exchange, repeal the wage tax.

Sen. Magalei Logovi’i, one of the co-sponsors of the bill, reiterated what he had told the committee in earlier hearings, that it was the intent from the beginning in drafting this legislation to repeal the 2% wage tax which is estimated to collect $3 million annually — but later it was changed to be reduced to 1%.

The reason, he explained is that the 3 cents alone — being proposed in the bill — is projected to collect only $1.5 million, which is not sufficient to provide the $3 million going to the hospital under the current 2% wage tax.

As a result, instead of repealing the wage tax, it was reduced to 1% collecting $1.5 million and that plus the 3-cent hike in tobacco products would bring in another $1.5 million, with a total of $3 million for the hospital, according to the Tualauta senator, who repeated this same explanation during the committee discussion.

As to the suggestion of hiking the tobacco tax to six-cents, Magalei — a former ASG Treasurer — said there is no guarantee that revenues under such a huge hike would be collected, noting that cigarettes are a product that “fluctuates” from time to time over the years.

However, he said the final decision rests with the Senate on the proposed legislation, but noted a hike of 3-cents and a drop of 1% in wage tax provides financial assistance to the hospital, which needs revenues for its operations, as well as local revenues to match Medicaid funds.

Samoa News notes that one of the major complaints in the past about the wage tax is that only workers — earning a wage — pay while others don’t, such as people who get paid in cash for their work or certain contract workers. But at the same time, everyone goes to the only hospital on island and many non-wage earners go off island under the off-island medical referral program.

Samoa News also notes that in the past years, there have been times when shipping service between the US and American Samoa were delayed for a long period time.

One such instance was more than two years ago, when shipping services were suspended, due to a labor dispute at the US west coast ports, resulting in ASG reporting at the time a drop in tax collection. There has also been several incidents in which there was a shortage of the major cigarette brands on island that was noted as due to the higher cost of the cigarette excise tax leading to importers bringing in ‘less’ supply.

Currently the tax is 33-cents per cigarette or cigar and for each 10 grams of smoking tobacco. The bill will increase the tax to “36” cents per cigarette or cigar and for each 10 grams of smoking tobacco, with 3-cents earmarked for LBJ operations.

For the current 2% wage tax, it will be reduced to “1%” — with 50% of revenues collected earmarked for operations of the hospital and the other 50% to support the Off-Island Medical Referral Program, which is overseen by the medical center, according to the bill, which also states that upon passage by the Fono and approval of the governor, the legislation becomes effective immediately.

(Distribution of the 2% wage tax, according to the current wage tax law, is that 50% goes to off island referral program and the other 50% to LBJ operations.)

Two store owners approached by a Samoa News reporter — on separate occasions — over the weekend after learning about the proposed tobacco tax hike argued that the proposed tax hike means that it will be $1.20 cents more for a pack of cigarettes, that contain 20 cigarette sticks inside.

“You also must remember that there are other costs involved, such as shipping that would further increase the price a customer pays further down the line,” said one store owner.

The other store owner points out that the manufacture’s cost could also increase, as well as shipping costs — all will be passed on to the consumer.

But a few reactions received so far on the tobacco excise tax hike are supportive of the bill, hoping that this will have people thinking more of healthy living, by smoking less or even “quit smoking all together”. Samoa News should point out that this could also lead to less revenues collected than estimated.