AMERICAN SAMOA SHOULD REVISE TAX CODE: COUNCIL

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Economic Advisory Council recommends reforms

By Fili Sagapolutele

PAGO PAGO, American Samoa, (Samoa News, June 24, 2008) - The Governor’s Economic Advisory Council (EAC) has recommended changes for Governor Togiola Tulafono to consider in order to reform corporate and personal taxes.

EAC submitted last week its policy reform report to the governor, which includes business licensing and immigration policies (see yesterday’s edition for recommendations on business licensing and immigration policies).

For "corporate tax policy," EAC says serious investors will consider the tax environment that they will operate under and quickly identify that American Samoa tax rates "are some of the highest in the world and by far the highest tax rates in the South Pacific."

For example, Samoa’s corporate tax rate is 29 percent, in New Zealand its 33 percent and the Asia-Pacific region average is 30 percent. For American Samoa, the current corporate tax rates ranges from 15 percent "up to and including US$50,000" and 44 percent for "greater than US$650,000," according to the report.

EAC also said that possible investors will be expected to pay: withholding tax on any dividend payments made to the parent company after payment of the high income tax; withholding tax on any interest payments on borrowings from non-US based banks and on any management fees paid to the parent, and; withholding tax on payments to any non-US based contractor or service provider.

Investors are also faced with high and inconsistent levels of Import Excise Tax on all fixed assets and raw materials sourced from off-shore.

"This can add up to an effective tax rate in excess of 65 percent. The investors may be told that they can apply for a Tax Exemption from the Tax Exemption Board; however this provides little comfort as it is not guaranteed and could change depending on the whim of politicians and/or a change of government," said EAC.

EAC recommends an initial reduction in the corporate tax rates, from 44 percent to 35 percent with a subsequent review to progressively reduce them further in three to four years when the impact of the initial reduction is known.

Other recommendations are as follows:

On "personal tax policy," EAC said this can be an issue for all taxpayers; however, as all workers will be subject to local tax policy it will appear unusual that the tax policy for employees was frozen in December 2000, therefore representing an older tax scale than that which currently applies in the United States.

EAC also points out that this may not be an issue, "except when you consider the benefits that US taxpayers have enjoyed subsequently, none of which have been passed on to the American Samoan taxpayer. This is a major concern when attempting to employ mainland Americans."

Traditionally lower salary levels relate to lower taxation and this is not occurring in American Samoa at present," said EAC, noting that ideally, a simplified tax code is adopted, similar to other Pacific Island countries. However, EAC said this has not been researched in any great detail in the preparation of this report as it is deemed out of scope.

EAC recommends that personal tax rates should be aligned to U.S. tax rates at a maximum, possibly even lower.

EAC did acknowledge that the US. tax code is very complex and difficult to administer.

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