Chamber of Commerce Opposes Increase in Tobacco Tax

The St. Thomas-St. John Chamber of Commerce (Chamber) is strongly opposing the proposed increase in excise taxes on cigarettes and cigars, referring to the legislation as another blow to an already beleaguered retail business community. Bill 31-0023, sponsored by Senator Sammuel Sanes, calls for an increase in excise tax from 35 to 45 percent on the value of each carton of cigarettes imported into the Virgin Islands for resale.
The Senate Rules and Judiciary Committee approved the measure on February 9th with all but one member of the committee voting for it. The Chamber board position is that even prior to the recent increase in excise taxes, cigarette taxes had already passed the tipping point when taking into consideration the 35% excise tax, the 5% gross receipts tax at the wholesale level and the 5% gross receipts tax at the retail level.
According to Chamber President Sebastiano Paiewonsky-Cassinelli, the legislation will do more harm to the sale of tobacco products than assist the Virgin Islands Government with a purported $435,000 in increased taxes. "The tobacco category is very price sensitive. The regional competition is intense and tourists have shopping choices and will make purchases in the lowest cost jurisdiction. Virgin Islands retailers, already at a competitive disadvantage, will continue to lose sales to competitors as a result of higher retail prices, which will, in turn, negatively impact gross receipts tax collections, employment, investment and corporate and individual income tax collection. The Chamber board and its membership do not agree with the rationale that tobacco products are largely ‘inelastic’ to price change, and that individuals will buy them regardless of price. This proposed excise tax increase will position Virgin Islands cigarette prices significantly higher than those found on St. Maarten, and we predict it will lessen the sales of tobacco in the territory and result in decreased taxes to the Virgin Islands Government. Critically important and not considered in the Bureau of Economic Research’s economic analysis is that tobacco and liquor are products whose prices shape the perceptions amongst tourists about VI competitiveness with respect to all other retail commodities. If they perceive that tobacco and liquor prices are high, they may then believe that all retail commodities in the VI are high and that we are not competitive as a destination when compared to our regional competitors. Finally, since the five carton allowance is not enforced by U.S. Customs this unique VI advantage has become irrelevant; therefore, the increase in cigarette taxes will magnify the damage to the VI. We appreciate Senator Janette Millin Young’s opposition to the measure, which mirrors our own concern," he stated.
St. Thomas-St. John Chamber of Commerce

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