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EAC report recommends removal of Tax Exemption Board
The Governor’s Economic Advisory Council (EAC) in its report on policy reform that was submitted to Governor Togiola Tulafono is recommending reforms in the areas of corporate and personal tax policies, including a recommendation to remove the Tax Exemption Board.
According to the report, “When faced with such a complex tax regime, the potential investor may take comfort in the tax exemption process.” However, traditionally, investors are not in favor of exemptions as they are often temporary by nature, and can be dependent on the whim of politicians or altered as a result of a change in government.
“These concerns are only heightened in American Samoa,” the report says. The EAC says applying for an exemption can be a time consuming and frustrating process as exemptions are not granted evenly or easily, despite promises that may are made during initial discussions with government representatives. “The worry of existing exemptions being overturned in the future exists as well as uneven playing fields being created should competitors obtain more attractive exemptions, particularly IET exemptions.”
The EAC says most investors would prefer to see a fair, reasonable, and consistently applied corporate and personal tax system that will provide comfort without the reliance on government support.
Therefore, the Council is recommending the possible removal of the ASG Tax Exemption Board, including cancellation of all existing exemptions provided, or a substantial revision of the tax exemption process.
The Council acknowledges that exemption removals may need to be progressively introduced as some corporations are only able to remain competitive as a result of incentives currently in place; however, for this reason alone, the EAC believes the Tax Exemption Board should be disbanded to encourage level playing fields at all times.
The key factors potential investors look for in the tax structures, according to EAC, are: fair and reasonable tax rates; consistent application of tax with penalties for non-compliance; no exemption process, particularly one that is not consistently applied; competitive tax rates, particularly with neighboring areas; and, simplicity.
The Council used Hong Kong as an example and said that one of the many reasons why Hong Kong became a major financial center, despite no real natural resources, was a very simple tax code and a reasonable rate of 18% that was fairly applied.
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