House approves review of QC program

Over four years after its enactment, the government’s qualifying certificate program will be undergoing an evaluation amid doubts over its overall economic benefit to the Commonwealth.

The House of Representatives voted Tuesday to adopt House Resolution 14-137, instructing the Commonwealth Development Authority and the Department of Finance to evaluate the QC program and to submit their respective findings to the lower chamber.

The measure, authored by minority leader Arnold I. Palacios, said it is time to evaluate the business incentive program “to determine whether it provides an effective incentive to lure outside investment to the Commonwealth, determine and assess the fiscal and economic impact issued so far, and to consider necessary revisions to the Investment and Incentive Act of 2000.”

Palacios had said that the original coverage of the law was limited to new businesses but it was eventually amended to include existing businesses, which, he said, essentially “allowed almost everybody from paying regular taxes” to the cash-strapped government.

While he acknowledged that business expansions or activities create jobs, he stressed that these employment opportunities do not go to the local workforce.

“We have no manpower here. What happens is that we bring in workers to get hired by businesses,” he said.

The QC program was set up to provide various tax incentives for investors to build, expand, and operate commercial projects in the CNMI. It was subsequently amended to relax the criteria for the issuance of QC by lowering the minimum investment amount for hotel or condominium expansion, removing the discretionary authority for the governor to establish terms and conditions in approving a QC, and allowing rebates of taxes of up to 100 percent for 25 years.

Palacios said the relief period is another issue to reassess.

In some countries, he said, the tax relief system is good only for five years.

Originally, he said the CNMI QC program called for a three-year incentive deadline but lawmakers later changed it to 25 years.

The law, enacted during the 12th Legislature, has undergone at least three amendments “to address the needs of existing business in the CNMI.”

The CDA, which administers the program, has said that the first amendment sought to entice new investments, the second was to help existing businesses keep up with new competitors, and third one was a tax break incentive for businesses that have weathered the economic crisis since 1999.

The CDA earlier expressed confidence that while the program was generous “it will not impoverish the CNMI.”

The program, in general, aims to strengthen the existing tourism and garment industries and, at the same time, develop new industries by targeting franchise restaurants, waterparks, cultural centers, aquariums, theme parks, convention centers, dinner theater, special events, golf courses, resort hotels and condominiums, manufacturers or processors of high technology products, Internet-related businesses engaged in Internet commerce and Commonwealth-based airlines and other aviation-related activities.

The first company to qualify for the program was SandCastle-Saipan in 2002.

Several other companies applied and were granted tax incentives. Most, however, decided not to push through with the program due to what they described as onerous conditions.