---

Nena Lets Congressional Act No. 9-131 Become Law Without His Signature

PALIKIR, Pohnpei (FSM Information Service): February 25, 1997 - Acting President Jacob Nena, without his signature, permitted Congressional Act No. 9-131 become law, designating it Public Law No. 9-139. The law further amended Title 54 of the FSM Code to redefine and elaborate customs procedures and the tax on imports.

Nena, in a communication to Congress Speaker Jack Fritz February 14, 1997, said he did not sign the act because he is very concerned about the new section 228 (8), which Congress added an import tax exemption for goods imported by any level of government in the FSM, including authorities and public corporations. "This will create a huge loophole," said Nena.

He stressed that, "Contrary to the professed need for developing our private sector, this new exception creates an incentive to de-privatize economic activity, such as what now is happening with fuel in Kosrae."

Kosrae State Government is the only state in the FSM that owns its fuel storage facility. Yap, Chuuk and Pohnpei fuel storage tanks are not owned by the government but by Mobil Oil, a foreign private company.

Nena told Fritz, "We can now expect materials on government construction contracts to be imported in the name of the government in order to avoid duties. So also with a range of other government purchases, from office supplies, medicines and books to vehicles and heavy equipment which heretofore have been purchased through private sector importers. If the government is truly the importer, it will run new risks with regard to non-delivery, timing of delivery, condition of goods, etc., which the private contractor previously ran. If the government is not truly the importer, the transaction will be a sham but we will probably never know it. While Congress did provide for recapturing the lost duty upon subsequent resale by the government 'importer,' this will be virtually unenforceable. Dishonest persons could order goods in the name of their government which are in fact paid for and intended for the use of themselves or other private parties, thereby evading taxes. At best, it could lead to widespread fraud and corruption."

"In analyzing taxation of government imports," said Nena, "it is tempting to view it as a useless transferring of the government's own money from one pocket to the other. It isn't. No importing government would ever receive all of the important tax it paid. The National Government receives 50 percent. The state 50 percent. And municipal or other government entities receive none. Thus, the burden and the benefit of the tax never completely coincide."

"Much of the improvement wrought by the new Customs Act may be sacrificed in this one, ill-advised exemption. EMPAT, Finance, the Attorney General, my Tax Reform Task Force, and I are unanimous in urging its removal now, before the new Law goes into effect," he said.

Nena transmitted a proposed legislation for Congress' favorable action, proposing to remove the exemption for government imports. At the request of Finance, the bill would also delay the effective date of the new Custom Act from June 1^st to August 1^st this year. This will provide extra time in which to promulgate new regulations, publish an explanatory manual for the public, and hold public hearings.