New hotel developer seeks tax break

Saipan International Group Ltd. is seeking a tax break by applying for a qualifying certificate authorized under the Investment Incentive Act of 2000 from the Commonwealth Development Authority.

The company is proposing to build a $76.8-million hotel called Saipan Globe Hotel located in San Roque,

The application was expressed at a public hearing called by the CDA Board last Oct. 13 at the Pedro Tenorio Multi-Purpose Center.

Based on the presentation made by SIG Ltd Project consultant Antonio Muna, the company is asking for about 20 percent tax break from the projected income that the CNMI will benefit for the first five years of business starting October 2018.

“The CNMI will benefit from direct taxes composed of hotel occupancy tax and payroll taxes that are projected to be worth $17,500,108. The indirect tax benefits, composed of estimated BGRT from local vendors reporting sales and estimated BGRT revenues from guest purchase off-site are projected to be worth $34,748,226 that sums up to $52,248,334,” said Muna.

“SIG Ltd is asking for a tax break from BGRT $7,707,063, bar tax (bar revenue at 5 percent of F&B sales) $201,216, income tax due $354,356, and excise taxes during construction period of $2,302,250 for a total of $10,564,884,” he added

The development is a huge undertaking as the company plans to construct a 536-room resort made up of 438 hotel rooms and 98 villas. The project will use 4.1 hectares of beachfront property located in San Roque Village.

The main hotel will have guest rooms, restaurant/bar, retail, administration and services, five restaurants, swimming pool facilities, shopping mall, a 60-room staff housing facility, utilities plant, and 295 car parking spaces. The initial phase of the project will provide 175 jobs.

During the discussions, Muna said the company is asking for a tax break so a portion of the profits made by the hotel can be dedicated to paying debts put into the investment to start the project.

“The project cost of $78.5 million, essentially, half of that will have to be borrowed. There will be an equity contribution of $36 million from the owners, but half of it will still have to be borrowed,” he added.

A number of attendees at the public hearing were not in favor of the development and of the tax break. One of them was Rep. Edwin K. Propst (Ind-Saipan) who was vocal about his opposition to the application.

“This project (Saipan Globe Hotel), really doesn’t bring anything into the Commonwealth. When the law came out it was a difficult time for the CNMI. [The] economy was hurting but we are thriving right now.”

“There’s a lot of momentum right now a lot of great things and we have a casino that is going to build by P.L. 18-56, a minimum of 2,000 rooms. So we are not hurting for more rooms but one thing we are hurting for is taxes. What we need is a new convention center, we have a hospital that is in dire straits as we don’t have a CT scan, equipment are outdated and outmoded, and medical programs are not getting enough funds,” said Propst.

“If we want to make the CNMI a better place we have to be very careful because we depend on taxes from hotels. We have long standing hotel that have been here for a long time. Hyatt Regency [Saipan], a highly named brand, does not have a qualifying certificate. They contributed so much and what about all the small businesses? Where are the small business incentives?” he added

Tina Sablan, as a private citizen, voiced her concerns and offered to provide research that has been done in Hawaii and other places.

“They used to be extremely generous of very similar tax credit programs that has been discontinued as they were considered unsustainable and they erode the tax base that needed fro things like the hospital, infrastructure, and public service that the community depends on.”

“If you (CDA board) give this, it will be just fundamentally unfair to existing business as it creates an un-level playing field,” said Sablan.

Glen Hunter said he supports the rejection of the qualifying certificate because with a another hotel being built with 2,000 rooms, the shortage or accommodations on island is not a main concern.

“I don’t support the application of the qualifying certification but that doesn’t mean I don’t support the business. I thank for Globe (SIG Ltd) for considering having a project here in the CNMI. I also don’t find any offense that the company is asking for a tax break. The law exists and allows that request to be made. No animosity and no ill-will.”

“But developers poses an impact on the environment, on infrastucture… they gotta be paid by someone and if not, the people will pay for it. If the CNMI has the capacity to grant tax breaks, why grant them to a completely new development. Grant them to the existing business that has been here for 10-15 years,” he added.

According to CBA board chair Ignacio Perez, the writers of the Investment Incentive Act of 2000 was thinking of economic multiplier at a time when the CNMI economy was down and hard.

“For every tourist that they (investors) bring in, they estimated $340, maybe that’s an old figure that a tourist would spend. Multiply that by five and that’s how much they estimated economic growth back then,” he said

“In terms of assessing the application, we recommend the application to the governor based on the requirements fulfilled and investigation made. If all requirements are met, we tell the governor this company is eligible. The timeline is pretty rigid as we have 90 days to assess and the governor has 45 days to sign,” Perez added.

When asked by Saipan Tribune if the development will still continue if the application for tax break is not granted, SIG Ltd president Tom Liu said the development will push through.

“With or without the permit we will continue the project because the major reason why the developer is interested in building this hotel is due to the shortage of rooms. With our business partner, Saipan Travel, we operate all six charters a week from China and that’s on a daily basis we have three overlapping flights.”

“So everyday on island there are 900 passengers that we service. That’s why we wanted to have 536 rooms so that 450 rooms can be used by the 900 passengers we are servicing now plus additional flights that we can operate from various cities to bring in more tourists to Saipan,” he added.

The public will be given a chance to give comments and views again at the CDA board meeting that is to be scheduled and announced.