The chair of the Senate Education Committee has proposed a way he says will raise revenues to keep more teachers from leaving the territory, and to hire new ones to replace those who've already left. But the business community says it won't work.
Sen. Norman Jn Baptiste's bill, which is co-sponsored by Sen. Adelbert Bryan, would increase the territory's excise taxes on beer and liquor; impose new import taxes on cameras and other electronics, fireams and ammunition, and luxury automobiles; and add a per-pack sales tax on cigarettes.
It should come as no surprise to Jn Baptiste that if he were a student and the retail business community were the teacher grading his proposal, he would get not so much as an "E for effort."
For starters, Mike Daswani, owner of Royal Caribbean, one of the major camera and electronics shops on Main Street, St. Thomas, said, the lawmakers didn't do their homework. "For senators to propose such laws without even talking to the business community to ask ‘What is your viewpoint?' ‘How do you think it would affect your business?'" is unconscionable, he said.
Beyond that, Daswani, who has been in business for nearly 25 years, said, raising taxes that dampen retail sales to visitors "will do more harm than good" to the government. About 80 percent of the traffic on Main Street is from the United States, he said, and the goods the Virgin Islands has to offer today "are not competitive with the mainland" because duties there are down to "no more than 2 or 3 percent, and they will keep reducing them until one day it's zero. And here we are trying to increase duties and taxes on the same products that we are trying to sell to the visitors from there?"
Also, as Carl Bonta, co-owner of the Baci Duty Free stores in Christiansted, St. Croix, noted, the Virgin Islands is "on the same cruise ship route as St. Maarten and San Juan. We're in a very competitive market, and people know what the prices are like – they're looking at web sites before they get here."
Main Street liquor retailer Vinnie Mohanani said that "increasing taxes on liquor will only lead to a decline in sales, which will trigger a drop in employment and tax revenues."
Indeed, to boost the local economy, Daswani said, the business community would like to see the government "abolish any duties that still exist on some products so we can make them more attractive."
Jn Baptiste's bill would:
– increase the V.I. excise tax on liquor (which excludes rum, brandy, wine and beer) to $8 from $6 per case, and to $4 from $2.50 per gallon (whichever is greater applies).
– increase the excise tax on imported rum to $6 from $4.70 per case.
– increase the excise tax on imported beer to $3.08 from $2.08 per case; and to $11.18 from $7.68 per keg.
– increase the excise tax on domestic beer to $2.30 from $1.55 per case; and to $7.64 from $5.14 per keg.
– increase the excise tax on brandy and wine to $3.04 from $2.04 per case, and to $1.35 from $.85 per wine gallon (whichever is greater applies).
– impose a 2 percent luxury tax on cameras and "all electronic entertainment devices" except for television sets and computers. (The tax would apply to local retail sales, not to postal or electronic mail-orders.)
– impose a 5 percent tax on firearms and ammunition.
– impose a tax on cigarettes of 50 cents per pack.
– levy a one-time luxury tax on passenger vehicles "with a base sales price exceeding $25,000." In what would appear to be a contradiction, the bill states that the tax would be "3 percent of the amount exceeding the base value of $30,000," using the Blue Book value.
The bill calls for the creation of an Emergency Teacher Recruitment and Retention Fund into which the revenues generated would be placed. That money would be earmarked "to implement negotiated salary increases to teachers, nurses, counselors and paraprofessionals no later than Sept. 1, 2000."
Mohanani said public officials need to know that "we face competition from new and expanding markets that did not exist 10 years ago." Sales are down in the territory because "cruise ship passengers are buying the bulk of their liquor in St. Maarten, aboard the ships, or at the expanded duty-free stores in Puerto Rico." A decade ago, easily 500 six-bottle boxes of liquor were delivered to passengers aboard the Norway when it was in port each week, he said, but today it's often not even 100.
With the territory's 4 percent gross receipts tax that both wholesalers and retailers pay plus 6 percent U.S. Customs duty on imports and local excise taxes, a liter of brand-name vodka that sells for $5.99 in St. Maarten costs about $8.99 in the Virgin Islands, Mohanani said. And, he added, this has an insidious ripple effect: Tourists who see that disparity "get the perception that prices for everything here are too high."
Still, in Bonta's experience, when tourists come to town, liquor is one of the first things they are looking for. "It's one of the ‘save' stories they've heard," he explained. "Nobody really needs 12 bottles of liquor at a time, but when a couple shops, they take back as much as they can because of what they can ‘save' on the price back home."
For smokers, the same is true of cigarettes, he said. But if a tax of 50 cents a pack is imposed, he said, "That would be $5 a carton, and we would be out of the cigarette business."
The major beverage distributors have already taken steps to make up for declining liquor sales, Mohanani said, diversifying their product mix, "selling hair products and dog food."
Daswani said V.I. shops "are trying to stay competitive by cutting our profit margin, and to see legislators trying to increase duties on products sold to visitors is only going to do more harm." Bonta said his margins are so tight that "with WAPA raising rates again, we cut out the lights when we don't need them and turn the air-conditioning off."
Two of the three Baci Duty Free stores stock liquor, Bonta said, but in the case of one, even without considering any new taxes, "I'm going to take the liquor out, because there's not enough profit in it."
Daswani said he's optimistic that the bill faces defeat. "There are some quite intelligent senators who will not go for this," he said. To reach others, he added, "As soon as the Legislature goes back to work, some of the business community people, including myself, will propose through the [St. Thomas-St. John] Chamber of Commerce that we approach them and say this is not called for."
The bill, introduced June 19, was assigned to the Finance Committee on June 26 and has been sent to the post auditor for analysis, according to James Francis, chief of staff to Sen. Lorraine Berry, the committee chair.

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