Firm seeks reforms •Council urged to find out how best to pursue diversification

Amid efforts to diversify the CNMI economy, an economic development council composed of members from the private sector and government appointees must be established to help identify what types of industries the CNMI needs to attract, according to David Burger , director of Burger & Comer accounting firm.

With the governor’s approval, the council may be given the authority to enter into long-term binding contracts with investors so that businessmen are assured of obtaining a reasonable rate of return from their investments.

In order for it to be effective, membership in the council should be diversified. “No one person should be able to block a new investment to protect his or her own interests. The interests of the CNMI as a whole should come first,” Burger told delegates in the recently held economic conference.

Changes in tax and investment laws should follow to lure prospective investors to the CNMI, he said.

Burger cited the need to amend Tax Source Act of 1987 which only allows a person who moved to the CNMI from the US mainland or Guam to be a resident for 10 years before certain types of their income are considered to be CNMI sourced.

This means that those who are considering to retire in the CNMI will be required to pay full income taxes or investment earnings for 10 years before they are entitled to a rebate.

If the CNMI wants to encourage people with money to make the CNMI their home, Burger said the government should reduce the 10-year requirement.

The $100,000 security deposit, Burger maintains, is a deterrent to foreign investment because the amount is excessive and the requirement that it cannot be made available to investors during the term of investment is too restrictive.

He noted that there are businesses in the CNMI that do not require a $100,000 cash deposit like opening many franchises. Although these franchises may not be major investments and in most cases worth less than $100,000, each one can provide four or five local jobs.

Business owners must not be prohibited from accessing these funds especially during critical times, he said.

Furthermore, the requirement that the deposit be placed in a certificate of deposit goes against all known investing principles as there are far better places to put the excess cash.

“The rate of return on a certificate of deposit in an FIDC insured institution are less than half of what a reasonable investor can achieve with a mutual fund or stock market investments,” said Burger.

Legislators claim that the $100,000 security deposit must be placed in a security deposit was just an assurance that the investors really own the those funds. They said there have been cases when the funds were withdrawn and advanced to the next investor to satisfy the deposit requirement.

Investors should be able to establish businesses here with a far lower deposit requirement and the money must be made accessible to the owner if he or she can prove that the business needs the funds. Investors should be able to place the deposit in any investment they choose, not simply a certificate of deposit, Burger said.

The CNMI’s nearest competitor, Guam island, has removed its gross receipts tax on wholesale sales in the late 1980s which led to the creation of a substantial wholesale industry.

Guam also offers abatements of property taxes, abatements or rebates or income taxes for limited periods, and is considering an abatement of income tax or dividends received from Guam corporation by individuals.