American Samoa Administration Proposes Major Tax Law Reforms

Update income tax tables, repeal 2% wage tax, implement 7% sales tax on goods put on the tabel

By Fili Sagapolutele

PAGO PAGO, American Samoa (The Samoa News, July 10, 2017) – The Lolo Administration is proposing to amend existing tax laws, such as updating the current individual income tax table, which has remained the same since 2000, as well as repealing the 2% wage tax, while proposing new tax laws such as a 7% sales tax that will apply to “goods” but not “services”.

The administration’s proposed legislative agenda to be sent to the Fono when lawmakers convene today to start the Second Regular Session of the 35th Legislature, was revealed during a briefing of lawmakers last Thursday morning at the Fono Guest Fale.

The briefing was attended by Fono leaders and several lawmakers, Gov. Lolo Matalasi Moliga, cabinet directors, and members of the ASG Revenue Task Force, chaired by Attorney General Talauega Eleasalo Ale who explained that the proposed amendments to current tax law, includes tax reliefs — returning money to the hands of the consumer — while the new proposed law will provide additional revenues for the government.

Lolo told the gathering that American Samoa needs to expand its revenue base in order to depend on itself and not the federal government, which is facing its own financial woes. (See Samoa News online Friday for details),

In the task force presentation, Talauega explained that the team was tasked by the governor to look at existing laws and ways to change collecting revenues, so that there is less dependence on federal money, which over the years appears to be decreasing annually.

He said the task force looked at a multi-year plan to improve local revenue generation and this was also the governor’s wishes, not to find a quick fix solution for just one year but a long term plan. “So the task force looked at 5 to 10 years ahead for planning,” Talauega said, adding that the task force identified existing laws to be amended.

He said the task force looked at repealing current tax laws that are a burden on the community, such as the 2% wage tax, 5% miscellaneous excise tax, and updating the current tax table for individuals that has been frozen, or remained the same, since 2000.

“The task force looked at all areas to improve [ASG’s] financial status,” he said, adding that the proposed amendments to current laws as well as new laws were all to be submitted to the Fono by last Friday.

AMENDING EXISTING LAWS

The presentation included a visual show on screen of a total of 8 laws the task force proposes to amend. The top three deal with the 5% excise tax on “non-carbonated sugary drinks, heavy construction equipment, and used vehicles, secondhand equipment”.

These excise taxes are collected by Customs at port.

Talauega said the task force believes in enforcing laws when it comes to what they call “sin items” — such as beer and cigarettes, and the task force believes there is a big problem with high blood pressure  and other types of diseases in the territory and something needs to be done about imported goods such as sodas and “sugary drinks”, which are being widely sold, with some arguing that this is not soda, so it's good to drink them, it's juice — but most of these items, the task force says, are sugary drinks.

The task force is proposing to amend the 5% excise tax on “non-carbonated sugary drinks” to a 15-cent tax per 12-ounces. They estimate that the current 5% excise tax collects about $93,244 annually but under the proposed 15-cents, the estimated collection is $1.9 million, according to data shown at the meeting.

For heavy construction equipment, (which currently provides about $55,494 in revenue on the 5% excise tax), the proposed tax is 25% — with an estimated annual collection of $774,889

The task force is also proposing a 25% tax for used vehicles and secondhand equipment imported to the territory. The current 5% tax collects about $297,318 annually but under the proposed 25% tax, the annual collection is estimated at $516,957

Talauega said the task force, which includes Port Administration director Taimalelagi Dr. Claire Poumele, looked at port fees, to be amended, and many can be done through the regulation process, while others have to be submitted to the Fono for approval.

According to the task force chart, port fees currently collect $4.55 million, but the proposed amendments would increase revenue by $2.55 million to $7.11 total annually.  Talauega said many fees have not changed in the past 20 years. (It wasn’t made clear at the presentation the specific fees to be hiked.)

He added that the task force looked at tax relief for residents — meaning returning money back to the people. One such example, is to repeal the 2% wage tax that is paid by all wage earners in the territory.

The task force estimates that $3 million is collected annually on the wage tax, which all goes to the LBJ Medical Center.

Another tax relief, identified by the task force, is gradually updating the income tax table starting in 2018, over a five-year period. The task force estimates a loss of $4 million in revenue by 2023 when the entire tax table is updated and to be in line with the federal tax table.

While ASG estimates a $4 million loss in updating the tax table, Talauega said, “if you look at another side, that’s $4 million given back to the hands of the public” to spend.

The task force is also proposing to amend the excise tax on beer, which is currently 190% of the value but the new amendment would be 35% per 12-ounces.

The last proposed amendment is to repeal the “5% miscellaneous tax”, which is outlined in the law and applies to imported goods that are not specified in the law.

Talauega said the task force believes this tax should be removed, but not all at one time, so it will be repealed over a period of time staring in 2019. He said it’s estimated that ASG gets about $7.2 million annually on the miscellaneous tax, so the task force has agreed to removing it gradually through 2022

PROPOSED NEW TAX LAW

Talauega presented to lawmakers the proposed tax laws that he said will further strengthen ASG’s financial status. For example, the Limited Liability Corporation (or LLC) bill, which the task force estimates will collect about $641,000 annually.

Another new proposal is the 7% sales tax, which Talauega said will apply to “goods” purchased but not “services” with the task force estimating a collection of about $24.1 million from.

According to the task force, the language of the sales tax bill would repeal the 2% wage tax by Dec. 31, 2019 or sooner, depending on the sales tax performance.

(Samoa News notes that a similar 7% sales tax — taxing goods but not services — was introduced early last year by House Speaker Savali Talavou Ale, but the measure never made it out of committee for a floor vote and therefore was automatically defeated. Some political observers believed the measure didn’t move forward in 2016, because it was election year.)

The task force is also proposing the 1% “alternative minimum business tax or AMBT” bill, which is estimated to collect about $2.3 million annually and the estimate is based on historical data over a 3-year period.

Over the 3-year period, on average, only 13% of corporate tax filers paid over 1% income tax of gross revenue, leaving 87% paying less than 1% on the adjusted gross income.

The last proposal, which can be made by the executive branch and does not require legislative approval, deals with the $1 per transaction for payroll deductions. Talauega said the $1 is paid by the vendor or the bank who seeks payroll deduction from an ASG employee, and not paid by the ASG employee.

ASG is estimated to collect $558,000 on this proposal, which the government is looking to implement next month.

All the proposed new revenue measures are estimated to collect $27.59 million annually.

Samoa News will report later this week on other issues from the task force presentation.

The Samoa News
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