Sometimes the most practical of ideas are right before us, but we don't see them right away.
This applies to the Department of Revenue and Taxation's dilemma. It wants to hire more tax enforcers, but a big chunk of its budget is being sucked dry by the 40% rent increase for its main office, which costs more than $1.3 million a year even when it used to be a warehouse store.
Rev and Tax's challenge with funding more tax enforcers was discussed at a legislative meeting Wednesday.
After learning of this, and to help Rev and Tax pay for more tax enforcers, Public Auditor Benjamin Cruz, who held the legislative budget and finance committee chairmanship for years, offered a solution.
Collect more tobacco taxes by plugging a tax-collection loophole.
Cruz suggested Thursday to Sen. Sabina Perez, chairperson of the Committee on Environment, Revenue and Taxation and Procurement, to repeal of the tobacco tax provision requiring bonded warehouses. By repealing this provision, tobacco tax collections will improve and fairness will be promoted among the island’s five tobacco wholesalers, Cruz said.
The bonded warehouse arrangement has allowed tobacco wholesalers to delay tax payments on products until after they are discharged from their bonded warehouses.
However, in a 2018 audit report, auditors found there were instances the department was not assessing the tobacco tax during the storage and withdrawal of the tobacco from the bonded warehouse. DRT was also not verifying the wholesalers' tax filings against the release of tobacco products from the warehouse for retail, the audit found.
"In light of recent headlines pertaining to the Department of Revenue and Taxation’s staffing, technology needs, and tax collection efforts, I think it is an opportune time to review and repeal the provisions of the law requiring bonded warehouses," Cruz said. "By repealing the need for a bonded warehouse, we could improve tobacco tax collections by taxing all tobacco products when they arrive on our shores. This would eliminate the need for DRT employees to verify what comes in and out of the bonded warehouse and free them up to pursue other priorities of the agency."
This makes sense. We hope the current set of administration officials and senators will listen to advice from a longtime public figure who knows what he's talking about.
This also helps to streamline tobacco tax collections and avert a repeat of an alleged tax evasion scheme stated in a lawsuit.
The lawsuit, filed by a whistleblower, Frank San Agustin, earlier this year, has alleged a tax evasion scheme stemming from the alleged underreporting and unpaid tobacco tax of $13 million. The lawsuit alleges an unnamed local tobacco wholesaler sold or illegally gave away tens of thousands of cartons of cigarettes after they were moved from bonded warehouses into the retail stream, and did not pay taxes as required by the law, court documents state.
Bonded warehouses might have seemed like a good idea many years back, but now Rev and Tax enforcement needs to try something new. If it's working only to the detriment of the public, it needs to be fixed.