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Economist: QC program must be reformed

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ESTABLISHED to attract new investments and create new jobs in the local economy, Guam’s Qualifying Certificate program no longer serves its original purpose and should be immediately amended, according to Bank of Guam Senior Vice President and Chief Economist Joseph P. Bradley.

Speaking before members of the Rotary Club of Northern Guam yesterday, Bradley said the QC program appears to have been “abused and the abuse has expanded through the years.”

He said the QC program was put together to be an incentive for off-island investors to come to Guam, with the goal of spurring the local economy particularly through jobs creation. He said the program doesn’t seem to serve that purpose anymore, alluding to recent reports that tax breaks were given to companies and business operations that don’t meet the criteria set for the incentive.

Created under Public Law 8-80, the QC program was conceived in 1965 as an economic incentive tool to encourage investment in activities that would strengthen the island economy.

“GEDA (Guam Economic Development Authority) doesn’t seem to understand its own program. The QC program should be revamped,” he told Northern Guam Rotarians during a luncheon meeting yesterday at the Hyatt Regency.

Tailored

In an interview after his speech, Bradley said the tax benefits under the QC program should be tailored on the actual investments and its ripple contributions to the local economy. “There should be a set of standards that will make sure that the investment actually occurs.”

He pointed out that the program worked well for new hotel developments and other big investments that created new jobs and helped stimulate the Guam economy.

Among the industries on the list of eligible investments under P.L. 8-80 include: insurance business; agriculture; aquaculture; mariculture; manufacturing; commercial fishing; services, tourism; Guam-based trusts; recycling; export trading; water and waste water; base operating service contracts for the military on Guam; small business entities operating on a military base; and global Internet infrastructure services.

However, the QC program was amended in 1994 under Public Law 22-159, which extends tax benefits only to captive insurance companies writing risk outside of Guam or writing risk in which coverage is currently not available on Guam. The modified QC program was authored by Sen. Ben Pangelinan and signed into law by former Gov. Joseph Ada.

In earlier reports, Pangelinan said the QC program was never meant to apply to the domestic insurance industry to begin with.

P.L. 22-159 also limits the tax abatement to a period of up to 10 years “and as long as said premiums are collected by a captive insurance company.”

The OPA audit, however, found that QCs for local insurance companies were renewed for up to 20 years.

“Somewhere along the line, people who decided to grant these QCs corrupted the intention of the law and applied the program to the local insurance industry,” Pangelinan said in previous reports.

Of the 23 current QC beneficiaries in existence, the Office of Public Accountability tested six and determined that GovGuam provided tax benefits of at least $21.7 million from 2008 to 2011.

The tax benefits consisted of $15.4 million in income tax rebates, $6 million in gross receipt tax abatements, and $358,000 in real property tax abatements, the audit showed.

Of the $21 million in waived taxes, $17.1 million or 78 percent of the tax benefits were granted to the insurance companies.

OPA found that QC holders from the insurance industry consistently received full corporate tax rebates, GRT abatement and income tax rebates for 20 years.

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