Tougher tax law sought • Gov’t may be losing million of dollars due to poor collection system, says CDA chair Tenorio

A law must be put in place to boost tax collection efforts of the government amid moves by the Legislature to attract foreign investments into the CNMI, according to Commonwealth Development Authority Board Chair Juan S. Tenorio.

Because the present collection system by the finance department is “lax,” the island government may be losing millions of dollars in potential revenues from corporations that have dodged local tax laws, he said.

“I fear that the influx of businesses due to new legislation will only result in increasing this vast pool of untaxed or unaccounted for business revenues,” Mr. Tenorio said.

“In this vein, I recommend that legislation addressing this area be considered in light of the anticipated increase of businesses as a result of these new legislation,” he added.

The CDA chair made the recommendation to the House Commerce and Tourism Committee which is currently reviewing measures aimed at regulating CNMI-based trust companies as well as limited liability corporations on the island.

Although he expressed support for the two bills since they would provide flexibility needed by investors, Mr. Tenorio noted the Legislature must come up with other incentives, such as tax shelters, to lure big companies.

He said lawmakers should enact legislation that is pro-active and in line with the island’s “unique” economy which will be beneficial to the local people.

In the flurry of enhancing the investment climate here, Mr. Tenorio expressed concern that one aspect of the business — revenue collections — is not being given the same attention.

“It appears that both legislation may attract businesses that do not impact heavily on our fledgling infrastructure,” he explained. “The concern should be directed to the question of how best to maximize on the government’s fair share of the business revenues of these [establishments].”

Mr. Tenorio maintained that some of the existing businesses are not properly taxed due to poor enforcement by proper authorities, such as the Department of Finance.

“Our tax enforcement is lax and if allowed to continue, the losses to our government coffers will only be exacerbated by the additional business activities,” he said.

“It is self-evident that we cannot continue to invite businesses to the CNMI if their lack of transparency will not result in increased revenues… It is critical that the CNMI has the mechanism in place to maximize its share in the activities of these new businesses,” added Mr. Tenorio.

The proposed regulations on trust companies is prompted by economic outlook on the CNMI which considers dollar-denominated trust accounts as among new types of financial services that can be established on the island.

This could attract Asian investors and U.S.-based businessmen, but the island government must safeguard public interests through regulations to be imposed on these potential trust companies.

The Commerce and Tourism Committee is expected to endorse the bill for voting by the lower house.