House version of Senate tobacco tax bill ends the 2% wage tax
Pago Pago, AMERICAN SAMOA — The House of Representatives passed in the second reading yesterday morning its version of the tobacco tax bill and their amended legislation repeals completely the 2% wage tax earmarked for the LBJ hospital. The bill goes for a third reading this morning and “shall become effective immediately upon passage” by the Legislature and approval by the Governor.
Before the bill was passed in second reading, Tuala-uta Representative, Larry Sanitoa requested a delay of the repeal of the 2% wage tax until the end of the current fiscal year. He stated that according to the budget approved by the Fono, LBJ would receive $3 million from the 2% wage tax and this funding will help with LBJ operations for this fiscal year.
However, if the Senate approves amendments by the House and it is signed by the Governor, the bill would become effective immediately around April of this year and LBJ would not receive half of the funding projected from this 2% wage rage for its operations this year.
Sanitoa said that if this is going to happen, the American Samoa Government, along with the Fono would need to try to find funding to help with LBJ operations.
The repeal of the 2% tax has the support of ASG Treasurer Malemo Tausaga, who was a witness at the hearing this week along with the Deputy Director of the Budget Office Aukuso Satia.
The amendment to the 2% wage tax is part of the Senate tobacco tax bill which was discussed during a hearing before the House Ways & Means Committee this week. Malemo and Satia testified before the committee about the bill.
The Senate tobacco bill calls for raising the excise tax on cigarettes by three cents and repealing 1% of the 2% wage tax for the hospital.
Currently, the tobacco taxes are divided among the bond payment, the General Fund and the American Samoa Community College. The Treasurer provided totals of tax money raised for each of those earmarks in Fiscal Years 2020 and 2021 to date.
He agreed with an observation by Sanitoa that the government was tapping the same source for several different purposes. He also noted the challenges that Treasury faces with the different earmarks.
Sanitoa asked if it wasn’t better to have all revenues be channeled to the General Fund so that Treasury can disburse the revenue as legislated.
In the case of the LBJ Hospital, Rep. Vailiuama Steve Leasiolagi detailed the funding currently received by the hospital and emphasized that federal grants from sources such as Medicaid now require a much reduced local match. The hospital is also receiving COVID-19 grants. He said this should be enough to cover the 2% wage tax revenue if the tax is repealed. He further stated that it’s about time to repeal this 2% wage tax and faipule should understand the history behind this 2% wage tax.
Rep. Avagafono Vaimaga Maiava echoed Vailiuama’s statement regarding the repeal of the 2% wage tax. He stated that he doesn’t want to let this 2% wage tax remain as a burden to all tax payers.
Committee Chair, Rep. Lavea F. P. Mauga also showed support for the bill, however, he doesn’t want LBJ to come back to the Fono and ask why the 2% wage tax was taken away.
Rep. Vailoata E. Amituana’i told the committee chairman that there is nothing to worry about; let them do their job and once the bill is passed, no one will question the integrity of the faipule and their decision.
It was pointed out by Sanitoa that it doesn’t make sense that the government has taken initiatives to reduce the smoking habit and at the same time expects to raise revenues from tobacco products. He said if those initiatives are working there will be fewer people smoking and the revenues from cigarettes will not increase.
Sanitoa agreed with Vailiuama’s view that the LBJ Hospital is now in a much better financial position. He strongly urged the government to pay the subsidy that’s already approved in the budget for the hospital. He said that’s the law.
Treasurer Malemo revealed that in the last fiscal year ASG did not pay the mandated subsidy to the hospital. He fully supported the suggestion that the wage tax be repealed and for ASG to pay the subsidy for the hospital.
Malemo said if revenues increase, the subsidy for the hospital can also be increased. He also favored channeling revenue into the General Fund from which Treasury can disburse funds as dictated by legislation.
Following the hearing, the committee agreed to amend the Senate tobacco tax bill, repealing the 2% wage tax for the hospital. The committee will also change the effective date for the bill. It is currently set to be effective immediately upon passage by the Fono and signing by the Governor. The revised effective date will be at the end of Fiscal Year 2021. This is because the 2% wage tax Is included in the current year budget for the hospital.
During the FY 2020, ASG collected $15.6 from tobacco taxes. For the first quarter of the Fiscal Year 2021, ASG collected $2.4 million from the tobacco tax.
Saole Representative, Titiali’i Kitara Vaiau supported the move to eliminate the whole 2% wage tax instead of repealing only 1%. Titiali’i said from reviewing the LBJ Hospital’s Fiscal Year 2020 budget, it was generating ample revenues from charges and fees and perhaps it was the right time for the Fono to consider rescinding the wage tax.
He said the wage tax was increased from 4 to 6 percent in 2012 with the sole purpose of raising $3 million to pay a loan to cover unpaid Worksmen’s Compensation for LBJ employees.
After the loan was paid off the wage tax law was changed to assign 1% of the tax to LBJ Hospital operations and the other 1% for the LBJ’s off island medical referral program. Titiali’i stated.
Malemo offered additional information to the committee about the 2% wage tax. In 2020, over 4,000 tax payers in American Samoa paid the 2% wage tax, and they collected over $2 million. In the same Fiscal Year, only 506 out of 4,000 registered business paid the 2% wage tax. The reason behind this problem is that staff was not aggressively collecting this money and enforcing the law.
In Fiscal Year 2020, Malemo said ASG paid over $3.8 million to LBJ from the 2% wage tax.
He said that not all businesses are the same. Some businesses pay their 2% quarterly, others are required to pay each month. So, at the end, many businesses failed to pay the 2% and this is the government’s money that needs to be collected. He further stated that the law is clear and he, along with his staff must enforce the law and be aggressive to bring in this money.