Parents Jennica Lynch and Davante Perez welcome their newborn baby boy, and the first born for the new year, Logan James Lynch Perez, at the Guam Memorial Hospital in Tamuning on Jan. 1, 2018.
Frank San Nicolas/PDN
Gov. Eddie Calvo wants to end gross receipts tax exemptions that cost the local government about $70 million a year in revenue, but Sen. Dennis Rodriguez said wholesalers should continue to be exempt, or pay a lower tax, in order to prevent a sharp increase in prices on Guam.
Calvo on Thursday submitted a bill to the Legislature proposing to end gross receipts tax exemptions for wholesalers, banks, hospitals and insurers and funnel the tax collections to help Guam Memorial Hospital.
The proposal replaces Calvo’s original plan to borrow $125 million for the hospital and increase taxes to pay for the loan and other hospital expenses.
Rodriguez said asking wholesalers to pay a lower tax – .5 percent or 1 percent instead of the current 4 percent – is a possible compromise, and said he was in the middle of commissioning an independent financial analysis when Calvo’s bill was introduced.
“I understand the need to work fast on this, but we had to do this right, and we had to get more information from the industries affected,” Rodriguez said. ” If we pass a wholesale tax levy in haste, we will be causing a world of hurt for our people.”
Rodriguez, a Democrat, recently announced his candidacy for governor. He is currently chairman of the committee on health and human services, senior citizens, economic development and election reform.
The island’s largest business organization slammed the governor’s bill, saying lifting tax exemptions for wholesalers, among other things, means double taxation and higher costs for goods, restaurant meals, cars and other items.
“Contrary to a popular belief by elected officials, the wholesale business model is based on a low gross margin; hence this additional cost is passed on to the retailer. The retailer now has to add 4 percent retail tax which is passed on to the consumer,” the Guam Chamber of Commerce said in a Jan. 11 letter to the Legislature.
Jeffrey B. Jones, President and Chief Operating Officer of Triple J Enterprises, one Guam’s wholesalers, said eliminating the GRT exemption for wholesalers will increase the price of most consumer goods on Guam, especially food. That’s because most wholesalers on Guam are in the food and beverage business, he said.
Jones said wholesalers will be unable to absorb the additional tax, which means they will have no choice but to pass the cost onto retailers, who will pass it on to the final consumer.
“If this legislation becomes law, instead of the 4 percent GRT tax consumers are currently paying they will be paying an additional 4 percent, or approximately 8 percent tax,” Jones said.
Rodriguez said requiring wholesalers to pay the gross receipts tax also would place smaller businesses on Guam at a disadvantage.
Bigger stores that ship in their products directly will have a 100 percent tax advantage over small stores that need wholesalers to source their products, he said.
“We can say goodbye to ‘Buy Local’, jobs, Guam-grown businesses, and the government revenue we’re ironically trying to raise if wholesalers are taxed at 4 percent,” he said.
The governor, in a written statement, described Bill 230 is a compromise bill, which he drafted in collaboration with Speaker Benjamin Cruz and Rodriguez.
Rodriguez said he will be calling an oversight hearing on the status of the Guam Memorial Hospital’s accreditation, following the governor’s statement that the only public hospital is in danger of losing its accreditation.
“There’s more information about GMH accreditation being under threat than there is about the GMH funding bill in this news release that’s supposed to be about the tax holidays. And this is the first time the administration is telling us that GMH accreditation is somehow tied to GMH modernization,” Rodriguez stated.
He said if senators knew accreditation was at risk, they would have allowed a joint commission accreditation inspection of GMH to happen without first providing the help that GMH needed.
“This news is coming out of nowhere in a very alarming way, and I’m concerned that the administration is using this effort to cushion the blow of bad news about accreditation,” he said.
A recent report by the Office of Public Accountability stated that Guam currently gives about $70 million a year in exemptions to the Business Privilege Tax to 800 different taxpayers.
Reporter Haidee Eugenio covers Guam’s Catholic church issues, education, business and more. Follow her on Twitter @haidee_eugenio. Follow Pacific Daily News on Facebook/GuamPDN and Instagram @guampdn.
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