Cap sought on QC tax benefits

Tax benefits will be capped to the amount of the investment under a House-approved qualifying certificate bill.

Currently, a QC beneficiary may be given a range of tax benefits as determined and recommended by the board of the directors of the Commonwealth Development Authority. The range may be up to 100 percent on all CNMI taxes for up to 25 years. As a result, some beneficiaries are able to obtain a windfall of tax incentives that exceed their invested capital.

The House of Representatives says it is not the intent of the QC program to provide more incentives than what has been invested. House Bill 16-21, which passed the House, will cap QC benefits to the amount of invested capital.

The bill is headed to the Senate for action.

The Department of Commerce welcomed the proposed legislation, but did not explain why.

“Though the proposed amendment sounds rather business unfriendly, most especially when our Commonwealth is in dire need of financial stimulus, we feel and agree with the proposed amendment in setting a maximum amount of tax abatements to beneficiaries of the Qualifying Certificate program,” said Commerce Secretary James Santos.

For his part, CDA’s acting chief executive officer Oscar Camacho predicted, based on CDA’s experience with benefit caps over the years, that the bill would receive mixed responses from investors.

Camacho recalled that caps had been placed on the benefits for Tinian Dynasty Hotel and Casino, $14 million; World Resort Saipan, $5.5 million, and We Manage Calls, $2 million.

While Tinian Dynasty and World Resort did not raise issues with the caps, We Manage Calls asked that the ceiling “be removed or the company would, instead, invest in Guam,” Camacho said.

He added that Tinian Dynasty and World Resort raised no issues with the benefit caps even though they were way below their investments. The caps represented 10 percent and 22 percent of the investments, respectively. The cap originally being recommended for We Manage Calls was 100 percent of its proposed investment.

Camacho also said the problem with the QC program lies in the lack of transparency. He urged the Legislature to address this by building benefit guidelines into the QC law.

“Having a schedule of benefits built into the law will not only lessen political pressures on CDA board members, it would greatly simplify the recommendation process and, most importantly, increase transparency of the program,” Camacho said.