Two bills to provide tax breaks, incentives

In efforts to perk up the local economy, two crucial legislation are under way in the House of Representatives which will provide tax breaks and other incentives to new businesses setting up in the Northern Marianas amid the worst crisis dogging the island.

Both measures are viewed as last-ditch attempt by the CNMI government to attract foreign investments as well as to broaden the economic base of the island whose tourism and garment industries have been impacted by the region-wide recession in Asia.

A bill introduced by House Speaker Diego T. Benavente is seeking the creation of a free trade zone that will offer a package of incentives to investors, including tax exemptions and rebates.

Another measure has also been proposed by Rep. Heinz Hofschneider establishing a mechanism to grant a similar package provided the company has met certain requirements, such as labor pool and minimum wage standards.

While both bills appear to have similarities, Benavente’s proposal has the blessing of Gov. Pedro P. Tenorio’s administration as this is the result of months of review by the Subcommittee on Free Trade Zone.

The government body was tasked last year to draw up the legislation on a special economic site as a centerpiece of the plan by the Economic Recovery and Revitalization Task Force, headed by the governor’s chief financial adviser Mike S. Sablan.

Under the proposal, a government-owned corporation, called the Commonwealth Free Trade Zone Authority, will have the broad powers to determine what types of industrial and commercial enterprises will be accommodated within the designated public lands.

A nine-member board, majority of whom are representatives of the private sector, but are all appointed by the governor, will implement policies to administer the operations and provide support services to businesses.

CDA as conduit: Hofschneider, on the other hand, seeks to empower the Commonwealth Development Authority to oversee what he calls a Qualifying Tax Certificate Program whose beneficiaries are entitled to receive a host of business incentives.

The proposal, however, hinges on compliance to a set of requirements and standards spelled out in the bill and which CDA must follow as criteria in granting the package to any company on the island.

Among these are preference to applicants whose company has a 51 percent stake from an owner who is both CNMI resident and U.S. citizen as well as at least 40 percent of its total work force in the non-managerial positions are from the local labor pool.

Furthermore, their resident employees must not receive less than the prevailing wage rate package, including benefits such as housing, food allowance and medical care which are extended to nonresident workers, and that their workhours are not reduced so as to accommodate an alien employee.

But aside from differences in the implementation process and the conditions provided to be eligible for incentives offered by each proposal, both measures are seeking to grant relief, such as payment of taxes on developer infrastructure and personal income, on any investment.

Hofschneider’s proposal covers a period of 10 years and offers a separate package of incentives for hotels and other tourist-related businesses, like exemptions from business gross revenue tax and excise import tax.

Those tax breaks are also provided under the free trade zone bill, but investors are also given reprieve in paying user fees, export taxes. and other taxes related to importation of capital equipment and machinery.

While Benavente’s proposal is not clear on the employment requirement of the trade zone, except to comply with existing labor and immigration laws, it has restricted the type of investments to those environmentally safe and requiring highly skilled and paid employees that will provide training ground for residents.