MARSHALLS CONSIDERS TAX-FREE STATUS ON IMPORTS

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By Giff Johnson

MAJURO, Marshall Islands (August 13, 1999 – Marshall Islands Journal)---The Marshall Islands, which recently slashed import duties to boost its business sector, is seriously considering eliminating all import taxes later this year -- a move aimed at both reducing enforcement headaches and coming into line with a proposed South Pacific free trade zone, said Finance Minister Tony deBrum in an interview Friday.

Elimination of the import tax will be to the benefit of the government because to enforce the current import duties will require a major increase in customs personnel, deBrum said. "The expense of enforcement is greater than the benefit of this tax to government," he said.

DeBrum’s proactive style of managing government finance policy in the year he’s been in Cabinet has brought applause from the Marshalls’ private sector, which until deBrum engineered the import tax cut earlier in 1999 hadn’t seen a tax cut in years.

Finance Secretary David Blake said that it is a much simpler procedure for the Ministry of Finance to collect the gross revenue tax from local businesses than to police imports to insure 100 percent collection. "We can enforce the gross revenue tax, but to identify containers with imported goods we’d need to triple the size of customs and pass new legislation," Blake said.

But a key problem remains: more than half of all local businesses are behind in their tax payments or haven’t paid at all, according to Blake. DeBrum wouldn’t say if the government would be forced to raise its other taxes to compensate for losing the revenue -- about 18 percent of government income -- that is currently derived from import duties.

DeBrum said the Ministry was still "crunching numbers" to see how it will meet revenue needs. But, he emphasized, "if businesses and the government cooperate (on tax collection), we can remain where we are."

As a result of the government reducing import taxes on many products earlier this year, "businesses are now more willing to pay," he said, adding that in the past the government’s "solution" to its inability to collect taxes was simply to keep raising them. The Finance Minister said the government plans to move in the opposite direction to stimulate greater private sector activity.

DeBrum said that the duty free concept was in line with initiatives by the South Pacific Forum to create a free trade zone in the Pacific over the next 10 years. Island Finance Ministers at a recent meeting in Apia, Samoa agreed to move forward with developing a free trade zone in the Pacific, deBrum noted.

The Marshalls is geographically positioned in the central Pacific to be an import-export port center in the Pacific, deBrum said. A duty free zone in the Marshalls would stimulate greater trade through ports in the Marshalls, he said. "The legislation is actually in place to make this happen," he noted.

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

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