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GHC Reid: Tax proposal a “staggering increase ”

The proposed bill tax increase on what the bill is terming as imported water bottles will result in a 15% reduction of work force for GHC Reid & Company, said the company president Mrs. Olivia Reid-Gillet, while not achieving the desired results — passage of the bill would instead “result in lost excise taxes that are currently being collected.”


(Samoa News should point out that the language of the bill applies the tax to “bottled water,” while the main subject of the bill is listed as “water bottles”. It’s unknown if the intent of the bill then is to tax the water inside the bottle, or the bottle that contains the water.)


Reid-Gillet testified before the House Ways and Means Committee, during a hearing called after Leone lawmaker, Puletu Dick Koko proposed taxation of imported bottled water, at 5¢ per 500ml in order to appropriate revenue for the renovation of the Leone waterfall, the Punaloa freshwater spring, paving the road leading to the Leone waterfall, and refurbishing all the tourist attractions in American Samoa.


In her testimony, she said, “We live in economically unstable times and our staff members are already working reduced hours as needed depending on the sales we generate. We cannot afford to have our bottled water business suffer further, which would affect all of our departments (Sales, Warehouse, Recycling, Administration and Accounting). Any reduction in our workforce affects that same number of whole families and further decreases collectible taxes by the ASG.”


She pointed out that the beverage industry is already heavily taxed dangerously close to a level where being in the beverage business is not profitable. Reid-Gillet asked why the new revenue measures are repeatedly concentrated on the beverage industry, “when we simply cannot continue to sustain tax increases?”


She said, “Beer is taxed at 190% which is unparalleled globally. Carbonated soft drinks are taxed at $0.15 per 12 fluid ounces which is also unfathomable worldwide.”


The company president said, “This would be a staggering 267% increase on imported bottled water duties if it is to be changed from the current 5% excise duty to being assessed at $0.05 per 500ml or fraction thereof. Our beverage industry simply cannot sustain this proposed increase and this legislation would not produce the desired results. Passage of HB 34-27 would result in lost excise taxes that are currently being collected.”


Reid-Gillet said the tax would increase imported bottled water prices across the board to a minimum of $20.00 per 500ml case or $0.84-$0.90/bottle depending on the retailer’s mark-up and that would make it more expensive than carbonated soft drinks, juices, etc.


She asked — why raise taxes on a healthy beverage, as this will discourage young people and adults alike from purchasing bottled water — because it will become more expensive to consume than other beverage options. “This Bill is counter-productive and will not produce the desired results. Any economist will contend that the more unaffordable an item becomes, the less desirable it will be.”


“In layman’s terms, that means if you can’t afford it, you don’t buy it. The ASG will end up losing more, as not only will their revenue projections fall short, they will also lose out on payroll taxes because several people will lose their jobs as a result of this bill. Please note that besides the usual margins that retailers add to the wholesale prices, they most likely would increase their margins beyond the norm in a desperate attempt to account for the decrease in their sales volumes due to the new pricing to consumers.”


The GHC Reid & Company president says the beverage business overall had a difficult year in 2015 with economic challenges such as the mandatory minimum wage hike, escalating freight costs and the loss of the fishing fleet business until recently.


She noted that historical figures prove that whenever there is an increase in import duties, imports will decline exponentially simply because consumers will not purchase the same volume of goods at the higher prices. “Being in the beverage business is already a challenge with some importers not declaring their beverages properly in order to avoid excise duties at higher tax rates such as this proposed legislation.


“Undoubtedly, if this large of an increase was placed upon bottled water, importers would opt not to declare their cargo accurately. Retailers and consumers would also find ways to purchase from the military outlet (the PX), which would be vastly cheaper because their imports are not subject to import duties at all.


“To reiterate, the ASG does not collect any duties on military shipments. Our own bottled water sales have declined by approximately 28% over the last few years due to rising costs from suppliers and freight costs due to labor strikes in the U.S., among other things,” she told lawmakers.


“The revenue that ASG expects to generate with this new increase would never materialize and local companies such as ours would only further suffer lost revenue in an already difficult economic climate,” she explained. “We don’t believe that any industry can sustain further tax increases, but if it’s insisted that they are needed, then we would humbly suggest that a sales tax across the board would be the most effective and fair way of raising revenue for ASG, rather than penalizing only the beverage industry.”


However, she asked, “How truly feasible is that course of action either, in these tight economic circumstances?”


She further noted that this bill would only further discourage outside investors from investing in our Territory with such high tax rates. “Legislation that fosters healthy business competition should be encouraged,” instead.


Reid-Gillet also pointed out that they themselves are continually giving back to the community.


“We reinvest in our youth’s educational and sporting events. We sponsor endless good causes, such as the Lions Club’s eye care projects, the Shriners child care projects and the Rotary’s swimming education project, and those are just to name a few. We also support the Women’s Auxiliary that continues to fund important projects at LBJ and we make every effort to support our schools. We continue to support these good causes despite the economic hardships that we face because we believe in our corporate responsibility to our people in the Territory.”


“We will not be able to continue supporting important and worthy causes such as these if we’re continually expected to pay escalating taxes,” she said.


According to Reid-Gillet, this bill will only further damage the private sector’s beverage industry. “Why should businesses like ours be punished for being able to run a sustainable organization?  It is unjust and it will lead to a further recession in our already delicate economic situation,” she said.