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Bill seeks to plug tax leaks in cargo shipments to Guam

Vice Speaker Tina Muña Barnes poses for a photo after a July 26, 2023 meeting with Guam Customs and Quarantine leadership and Oceania Customs Organization representatives. From left, Capt. Johnrick Mendiola, CQA; Michael Ligo, OCO; Ignacio Peredo, CQA director; Vice Speaker Tina Muna Barnes; Attorney Selai Iewanitoga, OCO; Chief of Customs Vincent S.N. Perez, Customs Officer II Adrian Mora; and Chirag Bhojwani, chief of staff for Vice Speaker Muña Barnes. Photo courtesy of the Office of the Vice Speaker

By Pacific Island Times News Staff

Vice Speaker Tina Rose Muña Barnes has introduced a bill designed to fix Guam's cargo shipping taxation and raise $50 million in additional revenue for the government.

Bill 176-37, if enacted into law, would align the accounting of cargo coming into Guam with the Harmonized Commodity and Coding System, a global standard maintained by the World Customs Organization.

The current system has serious limitations and gaps, contributing to tens of millions in lost tax revenue.

According to a report published by the Office of Public Accountability, in 2018, while air cargo that came into Guam was valued at $1.6 billion, only about $136,000 in use taxes were collected.

Proper taxation of the air cargo that year could have generated $65.5 million in use tax revenue, the OPA reported.

Improving and modernizing the way all imports are accounted for is a fundamental step to increasing government investment in law enforcement and other critical programs, Muña Barnes said.

She said the Guam Customs and Quarantine Agency helped in developing the proposal.

“For years the dedicated officers of Customs and Quarantine have been readying for this improvement – spurred by calls from two public auditors to use a better system for tracking and taxing imports. Whether it’s commercial shipping containers filled with clothes or persistent online orders, the government is responsible for taxing these goods promptly and fairly,” Muña Barnes said.

Bill 176-37 would authorize the director of CQA to promulgate rules and regulations to introduce the Customs Harmonized Commodity and Coding System, a Customs Automated System, and other provisions to successfully implement the systems.

“Globally, over 200 countries and territories worldwide use the Harmonized System, including the United States, to facilitate international trade and ensure consistency in the classification of goods,” Vincent S.N. Perez, chief of Customs, wrote in a letter supporting the legislation.

He said the bill would enable Guam to acquire the real-time data necessary to make well-informed decisions when dealing with business, investment opportunities, government regulations, and finances and greatly assist with providing accurate and real-time data efficiently and effectively.

The legislation is co-sponsored by Sens. Chris Dueñas, Jesse Anderson Lujan, and Dwayne T.D. San Nicolas.

In March 2015, the OPA, then led by Public Auditor Doris Flores Brooks, noted while attempting to review two years’ worth of use tax records, there were 418 days where no use taxes were assessed, or questionable data was recorded.

“Implementing a Customs Automated System and Harmonized Commodity and Coding System is something that Guam should have done long ago," Lujan said.

He noted thatHCCS is used by more than 200 countries and would assist Guam Customs and Quarantine modernize and streamline the current inspection procedures through the classification of goods into distinct codes that can be tracked, analyzed, and ultimately enhance the agency’s resource management.

“By utilizing this automated system, the Guam Customs and Quarantine Agency is not only unified with the rest of the United States, but is also made more efficient and effective in monitoring and protecting the entry points of our island," Lujan said.

In January 2020, Public Auditor Benjamin F. Cruz released another performance audit on Use Tax of air cargo, which again identified significant flaws and deficiencies. The agency’s manual processing risked unaccounted, unrecorded and unassessed cargo, and the applicable taxes on that cargo, the OPA found.

The audit report recommended CQA “aggressively pursue” a digital information system to replace the paper-based records of cargo manifests.

Bill 176-37 also includes a tiered penalty for importers who file misleading material through the new, automated systems - beginning with a maximum fine of $5,000 for a first offense, up to a maximum fine of $30,000 for a third offense.

“I am in support of Bill 176-37 as the legislation will not only be beneficial to the Guam Customs and Quarantine Agency but also the island,” said Sen. San Nicolas, the legislative chairman of the Committee on Emergency Response, Military and Veteran Affairs, Border Safety, and Mayors’ Council of Guam.

“As a former captain with Guam CQA, I understand that streamlining the classification and inspection system through the Harmonized Commodity and Coding System will improve the agency’s efforts in protecting and serving the island as it records all merchandise coming to the island in real-time.”

The measure does not change the current exemptions provided in Guam law for the Use Tax, which includes a provision that does not assess the use tax on imports that are for personal, non-business use of $1,000 per month, up to a maximum of $5,000 per year.

“It is a monumental step that Guam is taking in aligning not only the standardized numerical method of classifying traded products but also the adoption and implementation of a customs automated system. These two initiatives will allow the Government of Guam to make strategic trade policies in the most timely and accurate manner .

Real-time visibility will enhance our Customs and Quarantine officers' ability to enforce all import and export laws,” said Charlie Hermosa, a stakeholder with more than two decades of experience in the shipping industry.

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