OPA audit found tobacco tax underpayments
Ninety-nine percent of tobacco taxes are not collected immediately because the law allows importers to delay tax payments on tobacco products it stores in private warehouses, the Office of Public Accountability said.
OPA’s analysis of the Department of Revenue and Taxation’s data on tobacco tax paid compared with the calculations for tax due identified indicated an underpayment of $142,000 by one taxpayer and overpayments ranging from $2,000 to $46,000 by three taxpayers.
OPA said auditors attempted to obtain data on the quantity of tobacco products imported to Guam via the tobacco manufacturers/distributors conducting business with Guam-licensed tobacco wholesalers.
“However, not all Guam-licensed tobacco wholesalers, nor the tobacco manufacturers/distributors they import from, were responsive to our inquiries,” OPA said. “Due to constraints in obtaining sufficient evidence for independent verification, we referred concerns of potential underreporting to DRT to further investigate.”
Hinting at possible anomalies at the warehouse-level transactions, OPA noted a previous incident in which a Customs officer pled guilty in the U.S. District Court of Guam to having accepted bribes from a business owner between approximately 2010 and 2015 in exchange for releasing shipping containers without collecting taxes for the cigarettes.
OPA’s audit found that only 1 percent of imported tobacco was taxed and collected upfront by the Customs and Quarantine Agency “because the law allowed five wholesalers authorized by DRT to delay tax payments on the tobacco stored in a “’warehouse under bond.’”
A warehouse under bond is privately owned with a separate area controlled by DRT with padlock keys under DRT’s custody, OPA explained.
“While access to the tobacco appeared to be limited to when a DRT representative was present for the delivery and withdrawal, we could not verify that DRT had sole custody of all the keys to each padlock,” OPA said.
Upon initial delivery of the tobacco to the warehouse, a DRT representative verifies the quantities stored in the warehouse to the invoice/bill of lading attached to the tracer of product form. However, OPA noted that DRT makes no detailed record in its books, such as potential tax receivable.
“When the wholesaler is ready to withdraw the tobacco, a DRT representative is contacted to unlock the separated area and verify the quantities withdrawn. Similarly, DRT makes no detailed record in its books, such as deferred tax revenue,” OPA said.
OPA also found that DRT does not reconcile the wholesaler’s tax filing with the quantities and weights of the tobacco withdrawn from these warehouses.
“Unlike other taxable products, DRT can physically inspect taxable tobacco products and know how much tobacco tax should be collected for GovGuam,” OPA said.
But DRT fully relies on the wholesalers’ voluntary compliance and self-reporting of tobacco taxes, like other BPTs.