Palau Correspondent


NGERULMUD, Melekeok — President Surangel Whipps Jr. is pushing for tax reform to maintain government operations in the face of drastically reduced revenues due to the tourism slump brought about by the coronavirus pandemic.

In his first State of the Republic Address on April 29 in Palau’s Capitol, he continued to advocate for the passage of the much-needed tax reform.

To maintain government operations in the face of drastically reduced revenues with the collapse of the tourism industry, total loan financing over the medium term is expected to reach $75 million, which will result in increased debt service payments from the current level of around $3 million to almost $10 million by 2024, he said.

“These expenditure demands are not sustainable if reform measures are not undertaken. This is especially the case with the current gross revenue tax structure. The GRT, with its inefficient coverage and unfair application, will not generate sufficient revenues over the medium term to cover these expenditure commitments.”

Whipps said salaries and wages in the government —which is the biggest employer in the country — along with the transfers and subsidies comprise the highest costs of operations.

 “The required expenditure cuts from these areas will have a devastating impact on our economy.”

The comprehensive tax reform will broaden the revenue base by replacing the general imports tax with the Palau Goods and Services Tax (or value-added tax), which brings the consumption of services into the tax net.

President Surangel Whipps delivered his first address on April 29 in the Palau Capitol
Photo courtesy of Eric Whipps

The reform will also include gross revenue taxation to the Business Profits Tax (a net profits tax) and replacing import duties for alcohol and tobacco with an excise tax that also applies to local production.

The new tax will promote equity by adjusting income thresholds for the wages and salaries tax, Whipps said.

The president said that he is also rolling out a  plan to establish a comprehensive external debt management framework that will strengthen the review of the fiscal and economic implications of any new borrowing while improving debt transparency. 

The start of the travel bubble was one of his accomplishments in the first 100 days, Whipps said, although the bubble is still struggling to get tourists out of Taiwan to Palau.

“With a Sterile Corridor between Palau and the Republic of China (Taiwan), tourism has been restarted. This was not easy. It was not easy for health professionals; it was not easy for the tourism industry; and frankly, it was not easy for both countries, but we came together and we took a bold step forward. The world is watching, and I could not be prouder. Thank you for your trust and your help.”

Whipps said Palau continues to work with Taiwan, and the private sector to improve the travel bubble.


“And although we are taking such big strides to begin our economic recovery, we expect to continue to experience the impacts of the pandemic, and as such, we must be cognizant of our limited budget and prioritize our expenses,” he said. mbj