THE last known audit of Guam’s Qualifying Certificate program, which was conducted way back in September 2001, projected the island could lose $70.8 million in tax revenues under the life of the program during that time.
Because of this, Vice Speaker Benjamin Cruz is asking Public Auditor Doris Flores Brooks to conduct a full audit of the Qualifying Certificate program. Cruz fears the government of Guam may continue to “unnecessarily” bleed millions of dollars because of the controversial program.
Administered through the Guam Economic Development Authority, the QC program exempts beneficiaries from paying a portion or all of their corporate taxes. It also exempts beneficiaries from paying a portion or all of their gross receipts tax.
There are currently 15 activities or industries that are eligible under the QC program, provided the business or entity was formed on Guam. Those businesses include insurance agencies and hotels.
“Without a current audit, we cannot measure the effectiveness of this program, the extent of the revenue losses we may be experiencing, or the manner in which the QC requirements are enforced,” Cruz wrote in a letter yesterday to the public auditor.
In addition, Cruz also asked that the Office of the Public Auditor review the list of eligible industries and determine whether the existing priority set is appropriate.
The last audit, which was conducted by the Office of the Inspector General out of the U.S. Department of Interior, stated Guam lost tax revenues of at least $769,650 and could lose more than $70 million in potential revenues due to the QC program.
The Inspector General’s report based this loss on “unnecessarily generous” tax benefits to hotel and tourist industry firms that “may not have needed the level of tax benefits given.”
Some of the other findings in the report stated:
- GEDA improperly granted tax abatements of $460,000 to beneficiaries not in QC compliance;
- More than $5 million in gross receipts taxes and an “undetermined” amount of use taxes were improperly abated without verification of eligibility;
- Beneficiaries were authorized to receive $816,000 in additional tax benefits while concurrently allowing the beneficiaries to not employ 371 Guam residents; and
- $220,000 was spent on surveillance fees that were used for purposes other than monitoring QC compliance.
“In light of these austere times, our government must re-assess not only its essential functions, but the various tax incentives we continue to provide to select island businesses,” Cruz said. “Though the findings are dated, they demonstrate the damage which can occur with a QC program gone wrong.”