Flat tax rate proposed • House bill aims to revamp CNMI’s inefficient, unfriendly taxation system

The House of Representatives yesterday began the process of reforming the islands’ taxation system with a bill introduced by Speaker Benigno R. Fitial seeking to implement a flat tax rate scheme similar to those being proposed in the U.S. Congress.

This will help revamp the current local tax code which lawmakers describe as “complex, inefficient, unfriendly to the creation of new jobs and business, punitive to existing workers and businesses, and unfair in its multiple tax rate structure.”

Although a comprehensive overhaul and simplification of the CNMI’s taxation system, specifically on a flat income tax, will require consent of Congress, the initial steps will provide significant reforms and ease complexities in other local taxes.

The legislation, in particular, will simply tax rate structure of the wage and salary, earnings, business gross revenue, excise and business licensing fees.

It will also establish a basic two-rate excise tax system — one will impose a duty of one percent for basic necessities and five percent for others — from the much-criticized multi-rate system currently in place, according to the proposal.

Moreover, it will cut to five percent the rate on wage, salary and earnings of over $1,000 annually which at present stands at a little over 10 percent. The same structure will be applied for gross revenues of over $10,000 per year.

Annual business license fees, on the other hand, will be $125 for manufacturers, wholesalers, retailers and other establishments, while banks will be charged $5,000 and off-shore banking corporations, $10,000.

“These reforms are a significant step toward its goal of making the NMI a model pro-jobs, pro-growth, pro-business jurisdiction that offers its residents and investors a simple, fair and flat system of taxation,” the measure stated.

Flat tax

Under the bill, a Tax Task Force will also be created by the governor to prepare and circulate a simple, fair and flat tax system of “mirror image income taxation” for the Commonwealth, which will be based on the principles of legislation pending in Congress.

It will have a single flat rate not to exceed 19 percent upon all income subject to tax, while ensuring that all income is taxed only once. This will then replace the NMTIT for individual, corporate and business gross revenue tax.

To prevent negative impact on local revenues, measures will be implemented by the government in order to boost the public coffers, including hiking business gross revenue from five percent to six percent as well as modification on rebate offset to corporate taxpayers.

The bill is expected to be reviewed by the House Ways and Means Committee before it gets to the floor for voting.

Earlier, Mr. Fitial had underscored the need to improve the existing system when he sponsored a measure seeking the creation of a tax commission that will study areas needing reforms.

He disclosed that the commission would look into other forms of taxation, not just the flat tax system, to see what is the most appropriate for the island. A proposal now under study by the lower house, is expected to mirror the one implemented by the Hong Kong government

The Tenorio administration has been trying to simplify the current taxation system following the economic crisis that battered the CNMI in the past two years.
Its plan was intended to enhance revenue collection in light of the shrinking public coffers.