FTZ should offer better incentives than Guam

House Ways and Means Committee Chairman Karl T. Reyes stressed yesterday the need for the proposed free trade zones in the CNMI to stay competitive by offering a package of incentives better than neighboring islands like Guam.

He said the tax breaks to be granted to potential investors and the length they will take effect will still depend on the type of investments and the employment opportunities that will be provided to local workers.

“In order to be competitive, you have to have those (incentives) in place,” Reyes told reporters in an interview.

The representative was responding to concerns raised by Senate Vice President Thomas P. Villagomez on the legislation creating free trade zones on the island that will grant up to 100 percent of tax abatement over maximum a period of 20 years.

According to the senator, the incentive period is too long and that the measure does not guarantee that indigenous population and the resident workers will be prioritized for jobs to be created by these special economic sites.

But Reyes maintained that a proposed administrative body carrying out regulations within the zone will determine the package of incentives offered to businesses based on their benefits to the CNMI and its people.

He cited the example of Guam which grants various incentives, but not a hundred percent tax-free package to investors. “We have to offer more than what Guam does. Twenty years is not that long anyway, and the business will only be making meager profit but hiring a lot of people,” added the lawmaker.

Reyes is a member of the Subcommittee on Free Trade Zone which helped craft the legislation still pending in the Senate due to Villagomez’ objections.

The Ways and Means Committee also put in place the tax component of the bill, which members passed only after three months of intensive review by both the House and the panel comprised of business and government representatives.

Since the free trade zones will have their own board and implement policies and regulations, Reyes echoed House Speaker Diego T. Benavente’s position that lawmakers must allow the proposal to work first.

“Let them do what is good based on the report coming from each of the businesses,” he explained. “They will be the one to decide which type of incentives should be provided.”

He also underscored its multiplier effect on the local economy such as increased business activities, particularly in the banking sector and retail stores.

“The government will not be shortchanged because the tax benefits will come from employee taxes — the higher the salary, the higher the tax collections,” added Reyes.

Introduced in May and passed last month by the House, House Bill 11-389 has stalled in the Senate after Villagomez asked for further review, including a comprehensive study to back up the provisions in the legislation.