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MAJURO, Marshall Islands (August 24, 1997 - Marshall Islands Journal)---Local business leaders have expressed strong opposition to an eight percent import tax proposed by the Majuro Atoll Local Government.

The comments by some of Majuro's largest companies were made during a MALGov public hearing Tuesday chaired by Councilman Bokmij Bokmij.

The proposed ordinance would get rid of the current four percent sales tax in favor of an eight percent tax to be collected at the dock on all imported goods.

MALGov Councilman Ladie Jack explained that the local government wanted to get business advice about how to improve tax collections. MALGov records show that tax collections on alcohol and tobacco have dropped more than 50 percent this year compared to 1996. In addition, overall tax collections are clearly down. As of June 30 (which is nine months of the fiscal year), the local government had collected just $806,000 in taxes, more than $600,000 less than what was collected during 1996.

Local business leaders said that a key issue was enforcement of tax laws, and that increasing the amount of tax or collecting it at the dock would not improve MALGov's current tax situation.

Local businessmen said that there are clearly many businesses that are importing goods and not paying taxes. So the government (both national and local) is losing out on tax revenues.

But there is an added negative impact on the government by the companies that do not pay their taxes. Both Gibson's and RRE officials said that they had stopped or cut way back on importing cigarettes and beer because it was often cheaper for them to buy from the companies not paying taxes or it was too difficult to compete against the "black market" sellers when RRE and Gibson's had to pay taxes -- thus the government was losing out on tax revenues that they would have received had these two major companies continued to import these goods as they had in the past.

"The problem is that you are missing so much revenue from people who are not paying," said Gibson's general manager Sam Smith. "The government is losing money in two ways: some people bringing in imports are not paying taxes, and other businesses stopped importing goods because of this problem."

A tax increase would be a huge burden on people with low incomes because it will raise the costs of essential food items, said RRE's Lance Fisher.

PII's Jerry Kramer asked whether products imported for the purpose of manufacturing -- such as hops for brewing beer, or flour for baking bread -- would be tax exempt as they are now under national government tax laws.

MALGov officials replied that they would be taxed under the new ordinance.

"It will be the end of manufacturing in the Marshall Islands if we have to pay tax on imports for manufacturing," Kramer said. "This law would substantially reduce the possibility of manufacturing under discussion now."

But MALGov legal advisor Carl Ingram said this was only speculation on Kramer's part. "Where are the hard facts and figures?" he asked.

Local businessmen raised numerous other questions about the legislation.

Councilman Jack said that anything for resale in Majuro would be taxed. But if a business is buying goods to sell to the outer islands, they would be reimbursed for taxes paid at the dock. The businessmen felt this reimbursement would be extremely difficult to implement.

Micronesian Sales manager Danny Muno said that a lot his customers are from the outer islands and under current laws do not pay Majuro Atoll taxes. This new ordinance would "hurt outer islanders because my company will have to pay eight percent (up front at the dock), so the outer islanders will pay more for their products under this system."

Smith said that the national government already had an import tax on food ranging from five to 12 percent. Adding eight percent local tax would bring the tax up to 20 percent on many food items.

"Malnutrition and diabetes are a big problem here already," he said. " Higher taxes would have a negative impact on people."

Councilman Titus Langrine said that since tax collection is weak, could the businesses help the local government by collecting the tax at the wholesale level?

Several of the businessmen said that this would be an improvement over collection at the dock, because if tax was collected at both wholesale and retail, importers would not have to put eight percent up front to release goods from the dock.

Local council officials said that this might hurt the smaller businesses who would have to put money "up front" at wholesale stores for the tax.

But the businessmen in attendance said small businesses were buying for just a couple of days or a week at a time, whereas the large importers were bringing in container loads of goods, so the eight percent would have a greater impact on the bigger companies if they had to pay up front at the dock.

Local officials also commented that it was not just small businesses that are not paying their taxes; some of the larger businesses are also at fault.

But Kramer rejoined that the bigger businesses keep books and can be audited to check their earnings.

"We believe that enforcement will sky rocket your tax revenues," he said.

The public hearing closed on the general note that the councilmen would take into account the comments of the businessmen and will give notice of future public hearings on the matter.

The Marshall Islands Journal, Box 14, Majuro, Marshall Islands 96960 E-mail: Subscriptions (weekly): 1 year US $87.00; international $213.00 (air mail).

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