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Wage tax reduction discussion points to not all businesses paying their share

ASG Treasurer Malemo L. Tausaga (front) and LBJ Medical Center chief executive officer Faumuina John Faumuina
fili@samoanews.com

Pago Pago, AMERICAN SAMOA — While there are about 2,000 businesses in American Samoa only 506 of them paid into the government the 2% wage tax in fiscal year 2020, says ASG Treasurer Malemo L. Tausaga during yesterday’s Senate Budget and Appropriations Committee hearing on a Senate bill to hike the tobacco excise tax and reduce the wage tax to 1%.

This means, “we are not aggressive at the Tax Office” in pushing businesses to file and pay their share of the wage tax, said Malemo, who was accompanied to the hearing by LBJ Medical Center chief executive officer Faumuina John Faumuina, who told the committee that the hospital is not getting its annual ASG subsidy.

The wage tax — paid by all wage earners and reported on their earner’s tax return — is withheld by the employer from an employee’s pay, as part of local tax withholding. The employer then pays that 2% from the employee to ASG Treasurer, who then submits the payment to LBJ — with 50% for hospital operations and 50% for the LBJ’s Off Island Medical Referral Program.

The Senate bill increases the tobacco excise tax by 3 cents, which goes to LBJ operations and reduces the wage tax from 2% to 1% — with 50% of all revenues collected for LBJ operations and the other half for the off island medical referral program.

Speaking at the committee hearing, Malemo explained that based on wage tax financial data with Treasury Department for FY 2020, ASG employees amounted to over 4,500 and their total share of the wage tax, paid was more than $2.01 million.

For businesses, only 506 business paid the 2% wage tax into the government, with a total of $1.82 million, he said.

That means, “we are not aggressive at the Tax Office” in pushing businesses to file their taxes and pay their share of the wage tax, he said and pointed out that there are about 2,000 businesses in the territory.

In FY 2020, total wage tax collected was $3.82 million and the majority of that revenue came from ASG workers, according to the Treasurer, who also pointed out that the collected wage tax could be much higher  — more than $5 million — if all businesses pay, along with ASG, which is the law.

Former Treasurer Ueligitone Tonumaipe’a had said in past Fono hearings that the majority of the wage tax collected is through ASG employees and this is also the money that’s submitted right a way to LBJ.

With the revelation that the vast majority of businesses are not paying the required 2% wage tax money, Sen. Magalei Logovi’i suggested that the ASG witnesses, especially the Treasurer, revisit the current law to see if there are provisions, which gives Tax Office or Treasury the authority to enforce and collect this tax from businesses.

If not, Magalei said the Fono legal counsel can also review current law and if necessary, draft future legislation to provide enforcement power to the Tax Office. This was quickly supported by other senators, who pointed out that some businesses may be paying workers in cash and don’t deduct taxes and that all businesses should comply with the wage tax law.

Sen. Soliai Tuipine Fuimono claimed that there are businesses on island that operate on cash basis only and don’t file taxes He said this tax law and all other laws on taxes should be enforced.

During the first hearing early this week on the bill, Malemo voiced his support of the tobacco legislation.

For the hospital CEO, Faumuina informed senators that LBJ is not getting the usual ASG subsidy as in the past and is included in the annual budget. Regarding the wage tax, he said LBJ receives about $3 million annually — with 50% to LBJ operations — which includes purchase of required equipment and supplies — and the other half to the off island referral program.

Other funding for the hospital comes from Medicaid and Medicare and therefore LBJ must meet requirements for participation in the Centers for Medicaid and Medicare Service (CMS) to ensure this continued funding, he explained.

Faumuina said that LBJ must meet CMS requirements and guidelines of providing “good quality care” for patients.

As for the Senate bill, he said it’s up to the Senate, but asked that some  funds be provided to LBJ.

He says that it’s one thing to include an ASG subsidy in the budget but later there is none with the executive branch, with ASG saying that there is no money. And if there isn’t any money, LBJ will look at other revenue to assist with its operations and also to meet the CMS requirement,  he said.

Later in the hearing, Malemo noted that paying the ASG subsidies is based on revenues collected by the government.

Samoa News points out Tonumaipe’a — the former treasurer — made similar statements during Fono hearings in the past 8 years. He said the government has priorities to pay, and payroll is the top priority.