Foreign Firms Face New US Tax

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On January 2, the United States President Barack Obama signed into law the James Zadroga 9/11 Health and Compensation Act, which is funded by a fee on the government’s procurement of goods and services from foreign manufacturers and companies.

The Act will provide health care for 9/11 first responders who rushed to Ground Zero in the days after the World Trade Center attack. In a bipartisan move between the Republican and Democrat parties, the 10-year cost of the Act was reduced to USD4.2bn before its approval on the last day of the previous Congress.

It was also agreed in Congress that the cost of the Act will be funded by a 2% excise fee on certain foreign companies that receive US government contracts.

It was pointed out that, every year, the US spends between USD35bn to USD40bn per year on the procurement of goods and services from foreign manufacturers and companies located abroad in countries that are not members of the Agreement on Government Procurement (GPA), instead of from American companies.

The proposed 2% excise fee would therefore be imposed on foreign manufacturing companies located in non-GPA countries receiving government disbursements made pursuant to future procurement agreements. The proposal would also operate to prohibit companies from raising their prices to offset the new fee.

In the long-term, it was said that foreign countries will be incentivized to sign the GPA and the US government will be incentivized to look to domestic sources to fill procurement needs. It is also hoped that, over time, US tax revenues will further increase when US companies begin to pay taxes on their net income earned from the additional procurement contracts they receive (as opposed to foreign companies receiving these contracts who pay less or no taxes in the US).

Source: Mike Godfrey

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