Flat tax system eyed • House Speaker Fitial says Commonwealth tax code too complicated

The House of Representatives is now laying the ground work for the creation of a body of finance experts that will be tasked to review and draw up recommendations to change the existing CNMI tax system, Speaker Ben Fitial revealed yesterday.

Mr. Fitial cited the need to institute measures that would simplify the current personal and business tax system in the Northern Marianas which, he said, is too complex and complicated.

He said, however, that the lower house would carefully approach any element of tax reform to ensure the government continues to generate the necessary level of revenues needed to efficiently carry out essential community and public services.

Discussions are now underway between the Speaker and the members of the lower house, in consultation with legal and finance experts, for the drafting of a legislation that will clear the road for the institution of a flat tax rate.

“I prefer the simplicity of a flat tax. That is why I will propose a commission of experts to consider ways to streamline our Commonwealth tax code and reduce the tax burden on productive enterprise. This is an effort that should begin soon,” Mr. Fitial told members of the Rotary Club-Saipan.

Mr. Fitial’s proposed flat tax rate will replace several duties imposed by the government on businesses and individual taxpayers that include excise and earning taxes, as well as Chapter 2 and Chapter 7.

The House Speaker said the draft tax code legislation being worked out by the lower chamber as spearheaded by his office will be patterned after the Hong Kong tax system.

The Tenorio Administration has repeatedly bared plans to simplify the current CNMI tax system. In fact, Gov. Pedro P. Tenorio previously discussed the possibility of a tax reform with members of the 11th CNMI Legislature and his finance managers.

The governor’s call for changes in the CNMI tax system was driven by the worsening economic condition which has been forcing the government to institute measures that would enhance revenue collection in light of the severe depletion of public resources.

“I am asking my financial advisers and the members of the Legislature to come up with measures that would simplify our tax system. We badly need a system that will be workable for both the private sector and the CNMI government,” Mr. Tenorio said.

The CNMI chief executive emphasized that the institution of a new system is not aimed at increasing or imposing additional taxes but to enhance revenue collection.

Mr. Tenorio is forming a task force on taxation which will be asked to map out plans for the possible implementation of a simplified tax collection system for the islands.

Finance experts noted that a simplified taxation system would mean higher compliance among taxpayers which would eventually lead to more revenues for the government.

The previous administration had considered the possibility of a flat tax system in an effort to replenish government earnings. The flat tax proposal was also expected to reduce individual and corporate tax burden.

The finance department had also suggested a 10 percent uniform tax rate, as well as the scrapping of excise tax excluding tobacco, alcohol and personal commodities worth over $1,000.

This proposal was opposed by various sectors for fear that the replacement of sales tax with a flat rate would adversely affect the tourism sector which was then the highest revenue-earner among other local industries.

The United States Internal Revenue Code, which has remained unchanged for 19 years, has been strictly enforced in the Northern Marianas. At the same time, the CNMI implements its own taxation laws.