Palau Correspondent

Palau’s Olbiil Era Kelulau or Congress has yet to vote on a bill to move to a value-added tax system.
Photo by Bernadette H. Carreon

KOROR, Palau — President Tommy E. Remengesau Jr. on Nov. 12 submitted a proposed bill eyeing tax reform — hoping that the legislation be enacted into law before he leaves office.

The bill proposes the elimination of the Gross Receipt Tax system and replaces it with the so-called Palau Goods and Services Tax, a value-added tax system.

In his transmittal letters to both Senate President Hokkons Baules and House Speaker Sabino Anastacio, Remengesau said it is time to reform the nation’s tax system.

“The pandemic has exposed the vulnerabilities of our economy, and revealed key areas for improvement …. This is the time to improve our business climate by establishing a corporate registry, by developing a system for international commercial arbitration, by improving the resiliency of core sectors and by reforming our tax code.”

This is not the first attempt to reform Palau’s tax system; in previous Congresses the VAT system was introduced but never gained ground among the lawmakers,

Remengesau said since the 7th Congress or 13 years ago, the VAT system has always been on Palau’s “to-do-list”  but was passed by Congress, due to fears that it could impact small businesses.

Extensive studies have been made on the VAT system, with the government finding  that Palau’s tax regime of using  GRT “favors large, established, vertically-integrated businesses, while disadvantaging small startups, family businesses and boutique operations,” Remengesau said. The 2007 Task Force found that GRT discourages international investment.

“Thirteen years and three constitutional governments later, Palau is still working to encourage local start-ups and small businesses; Palau is still working to encourage new foreign investment. And unfortunately, Palau is also still collecting GRT,” Remengesau further said in his transmittal letter.

The tax reform legislation is one of the conditions set by the Asian Development Bank for drawing down the second tranche of the $20 million  of a concessionary loan offered by the agency to Palau. The final tranche requires enactment of the tax legislation into law.

President-elect Surangel Whipps Jr. during his campaign advocated for tax reforms and authored VAT system bills during his time as a senator. mbj