Taxes from garment exports drop

Government revenues from apparel exports suffered a modest fall in the first eight months of the Fiscal Year 2000, primarily caused by the anticipated result of billion-dollar suit filed against garment manufacturers on Saipan and their mainland United States buyers.

Records obtained from the Department of Finance disclosed a 1.5 percent reduction in garment user fee collection during the period covering October 1999 through May 2000, from last fiscal year’s $25.5 million to $25.1 million.

The CNMI government has consistently projected reduction in earnings from apparel exports since the billion-dollar class suit was filed in early 1999.

Mike Sablan, the governor’s special consultant for budget and finance, said the October 1999-May 2000 1.5 percent reduction in user fee collection suggests the Saipan apparel manufacturing sector is not likely to grow as much as it did in the previous years.

“It has been anticipated since the class action suit was filed. The government is very concern over user fee collection since last year. The reduction only indicates that the garment industry is not growing as much as it did in the past,” Mr. Sablan said.

The governor’s finance consultant stressed that the CNMI government would continue to monitor developments and trends in the apparel manufacturing sector.

The apparel industry in the Northern Marianas has persistently manifested resilience despite downturn in local and regional economies,. which has facilitated the Commonwealth’s efforts to weather hard economic times.

In Fiscal Year 1999, user fee collection from garment export certification increased $2.5 million to $39.3 million from the previous year’s $36.8 million, according to records obtained from the Central Statistics Division of the commerce department.

However, actual user fee collection was still lower than the original government projections of $41.1 million for FY 1999. The FY 1999 figure represents an average of $9.825 in direct quarterly government revenue from garment export certification, up from year-ago’s average quarterly collection of $9.2 million.

In 1998, the CNMI government generated some $36.8 million from user fee collection. Department of Finance records indicate an increasing trend in fees collected from garment export certification since 1996.

The Saipan Garment Manufacturers Association previously told CNMI legislators the industry is currently dealing with slow business due to the class action suit filed in two federal courts in Los Angeles and Saipan, and another in a San Francisco state court.

Government reports said apparel orders from mainland buyers have dropped by as much as 30-40 percent.

Government officials said growth in user fee collection last year helped offshoot the dramatic decline in all other revenue sources of the government during the same period.

Garment exports from Saipan started growing in 1996 from $513.7 million, reaching $748.6 million the following year. It soared $994.6 million in 1998, then surpassing the billion-dollar mark last year.

The Saipan garment manufacturing industry has positioned itself to be a significant contributor of direct annual revenues for the government, or nearly 25 percent of all tax earnings, generating close to $40 million annually in direct revenue.

At an average of $1,800 income taxes per person, the Saipan apparel manufacturing industry, which currently employs about 15,000 foreign workers, contributes $27 million in income taxes alone.

Aside from contributing to the public coffers through income taxes, each garment workers spend on consumer products. Based on foreign workers’ average $50 weekly expenditure, all 15,000 garment workers cumulatively spend $750,000.

This figure represents $36 million in total annual amount circulating within the local economy. Considering its multiplier effect, two nonresident garment workers actually create an employment opportunity somewhere else in the economy.

Meanwhile, Mr. Sablan also pointed out that June will prove to be a very critical period for the government in terms of identifying additional resources to at least meet the level of collections recorded in the same month last year.

The Commonwealth, in June 1999, received some $9 million in total taxes from the Hillblom estate, which helped replenish public coffers. “It is not going to happen again this year. We are not expecting any additional taxes from Hillblom.”

“The government is now tasked to identify additional sources of revenues to make up for the $9 million that were collected from the Hillblom estate in June last year,” Mr. Sablan said.