Wider tax exemptions get commerce backing

Commerce Secretary Frankie B. Villanueva has expressed support for a plan by the Legislature to provide tax exemptions to businesses which meet certain criteria to be imposed by the government in efforts to spur the local economy.

Called the Qualifying Tax Certificate Program, the proposal is sponsored by Rep. Heinz Hofschneider to assist the private sector in dealing with the current economic crisis through a package of incentives.

While the tax relief is similar to the proposed free trade zone in the Northern Marianas, Villanueva said the exemptions it offers are greater in value as it proposes up to 100 percent rebate.

But the system of rebates and abatements “appears vague,” he said in a letter to House Ways and Means Committee chair Rep. Karl T. Reyes who is currently reviewing the bill.

According to the commerce secretary, the measure opens opportunities for employment and job training for CNMI residents as it requires businesses to hire 40 percent of their workforce from the local labor pool before they can qualify from the program.

“(I)n what appears to be a restatement of… the ‘Resident Workers Fair Compensation Act,’ we support the inclusion of various entitlement currently provided to nonresident workers to any benefit package to be offered to resident workers,” he said.

Villanueva, however, cautioned against the restrictions provided under the proposed program, noting the Foreign Investment Act has already put in place certain limitations, such as investment thresholds and percentage of equity, on commercial farming and commercial fishing.

The Qualifying Certificate Program seeks to empower the Commonwealth Development Authority to oversee its functions as it 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.

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.

The twin measures are intended 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.