Public Auditor: DRT losing out on tobacco taxes

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The Department of Revenue and Taxation could double the amount it collects in tobacco taxes if only they'd toughen enforcement efforts.
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Public auditor Benjamin Cruz estimates that the Department of Revenue and Taxation could double the amount it collects in tobacco taxes if only they’d toughen enforcement efforts.

The public auditor released an audit Monday that recommends scrapping the current bonded warehouse system and forcing tobacco wholesalers to pay the tax owed upfront when their products first arrive on island.

The audit acknowledges that Rev and Tax has tried to improve its bonded warehouse oversight, but concludes that its current practices are not enough to provide reasonable assurance that all tobacco taxes are complete and properly accounted for.

Public Auditor Benjamin Cruz said: “Your audit shows that Guam is maybe collecting $23.5 million. Is that the maximum? Is that it? We think that if properly monitored and operated with adopted rules and regulations, some people are saying that it could be even three times that amount.”

The audit faults Rev and Tax for not adopting any policies, rules or regulations for collecting the tobacco tax from wholesalers who store their tobacco products in bonded warehouses which is what all five tobacco wholesalers do now.

“The Department of Revenue and Taxation has not written and gotten approved the rules and regulations for a bonded warehouse. There is no requirement of what a bonded warehouse should be,” Cruz said.

Even though they’re called bonded warehouses, the law doesn’t require any bond to be posted and the warehouse could be just an area set aside at the wholesaler’s place of business.

By placing their products in these so-called bonded warehouse areas, wholesalers can postpone paying any taxes on their products until they’re removed and sold to a retailer.

The OPA’s audit found that Rev and Tax does not send inspectors out to record sales and ensure compliance. Instead, they rely on the wholesalers to come to them and pay the taxes they say they owe using the honor system.

Cruz said: “The bottom line is that it’s just a haphazard operation in terms of taxes. What’s the risk of not collecting all the taxes that are due?”

The audit recommends that the bonded warehouse system be scrapped

“The only way to be able to address that is to do what the law originally had which was tax it as soon as it gets off the ship. That’s our primary recommendation. What’s needed for those of us who are auditors is accountability and verification,” Cruz said.

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Wharehouse Audit