Journal Staff

President Surangel S. Whipps called for tax reform in his first national address.
Photo courtesy of Eric Whipps

Island leaders have aims when they reach high office, but President Surangel S. Whipps Jr. has a to-do list that is driven by economic urgency.

Palau is carrying loans from the Asian Development Bank. Among these are a loan of $20 million in July 2020 from the Health Expenditure and Livelihoods Support Program, designed to support Palau in efforts to combat COVID as well as support its economic stimulus package and most recently $25 million through the Recovery through Improved Systems and Expenditure Support Program at the end of April, designed to continue to support public sector fiscal reform and help the private sector return to economic growth.

Speaking with the Journal on May 11 in Guam, Whipps said, “Palau is in this very odd position — considered high income already — so we don’t get grants; what we get is loans, which need to be paid back. It’s a concern to us because we have to start paying them back in 2024, to the tune of $10 million a year. On a budget of $100 million, that’s 10% of our budget.”

The president said, “That’s why we’ve got to think about, ‘How do we diversify our economy?’”

Military is one source of support, as is the return of tourism, he said, plus developing the financial sector for companies from Asia. 

“I think there’s opportunities there — maybe to have [Palau] as a regional hub for companies. … Palau could be a place that they could set up. We’ve got the protection of the United States and yet we’ve got our own tax and immigration laws. We don’t need too many companies, we just need some large ones — that are reputable,” Whipps said.

Whipps also plans to achieve what other islands have frequently talked about — reforming the tax structure.

This has long been an aim of the president. According to Journal files, as a senator, he introduced a bill to do that in February 2013 in the Olbiil era Kelulau — the Palau Congress.

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

According to Journal files, 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.

Reform will also move from gross revenue taxation to the Business Profits Tax (a net profits tax) and replace import duties for alcohol and tobacco with an excise tax that also applies to local production.

Additionally, reform will include adjusting income thresholds for wages and salaries taxes.

“It’s about building small businesses; it’s about leveling the playing field,” Whipps said. Income tax payments would also see annual returns. “You declare, and then we’ll do a tax refund, like they do in the U.S. The idea is to minimize the impact of taxes on the local people,” he said.

Whipps does not intend to change legislation governing businesses entering Palau to do business. Foreign Investment regulations reserves some sectors for Palauan citizens, while other sectors are semi-restricted.

“We’ve always believed that if we’re going to develop Palau, it should be for Palauans. So if Palauans can do the business, we don’t need a foreigner to do it — that’s the basic concept behind foreign investment.

However, he said, “We should review the process and speed it up and make it [clear.]”

Within the ministries, we’ve been trying to make them more customer-friendly, [with] more accountability and just change things a little bit.”

Whipps has made changes to the traditional ministry structure, changing the Ministry of Public Infrastructure, Industries and Commerce to the Ministry of Public Infrastructure and Industries, moving the functions of the Bureau of Commerce to the new Ministry of Human Resources, Tourism & Economic Development.

The Ministry of Human Resources, Tourism & Economic Development will focus on employment and labor. The new ministry will be tasked with reforming the pension system, reviewing and updating labor and employment laws for the public and private sectors, and creating a PalauJobs virtual job board.

Whipps said, “The personnel part of [the Ministry of Finance] is going to move over there. We’ll expand that to also look at the private sector and how we improve working conditions … .”

The Ministry of Finance is also seeing changes, he said. “We’ve combined that with Customs, Immigration and Quarantine. We’ve put them under one umbrella to really combine the resources and really better manage our borders. We had three different ministries at the border,” Whipps said. The idea is to streamline processes, he said.

Palauans received funding under the CARES Act. “We got assistance for Palauan citizens that were in the tourism sector,” Whipps said, Foreign citizens in the tourism sector received monies from a Congressional program, but this was reduced in February by 50%. “We’re paying them and now they work in the businesses to get them up and running.”

The focus of help has changed, Whipps said. “Before we were paying them, now we’re saying go back to your employer and help them get ready for the tourism return.”

Aside from his political career, Whipps has a background in business, notably as CEO of Surangel & Sons Co. and is a former president of the Palau Chamber of Commerce.

At 52, Whipps is among the younger island leaders in Micronesia. “I had my health checkup when I went to Taiwan,” he said. “I’m all good.”

He holds a 1988 bachelor’s in business administration from Andrews University in Michigan, and a 1992 master’s from the Anderson Graduate School of Management at the University of California in Los Angeles. mbj