BY BERNADETTE H. CARREON
Palau Correspondent
KOROR, Palau President Surangel S. Whipps Jr. signed into law on Sept. 29 a comprehensive tax system that will take full effect on Jan. 1, 2023.
The first tax reform since the trust territory days to fund government operations and other obligations.
The new law or the value-added tax regime, otherwise known as the Palau Goods and Services Tax will replace the Gross Revenue Tax that the nation has been using for more than 30 years.
The signing ceremony was conducted during the Mechesil Belau Women’s Conference and President Whipps said that the PGST is required to access the last tranche of $15 million from the Asian Development Bank’s policy-based loan to the Palau government, among other reasons.
“More importantly, we need to update our tax regime to meet the challenges of today’s economic realities,” Whipps said in his address before sitting down to sign the bill.
He thanked the House of Delegates for working until 2 a.m. on Sept. 29 to pass the legislation.
Contributed photo
The 109-page bill has been pending in the House despite the Senate’s passage of the bill in August.
Whipps said the law is just the start of the long work ahead to inform and educate the business sector and the general public to ready themselves for the transition process.
The law will implement a 10% PGST tax, replacing the GRT tax which imposes 4% tax on the gross sales. The difference this time is the taxation process starts at the port.
Under the new law, all businesses /taxpayers with annual revenue of more than $300,000 will pay the Palau Goods and Services Tax and Business Profit Tax. Businesses with annual revenue of more than $50,000 but less than $300,000 will pay 4% GRT or the same tax as is collected currently. Businesses with less than $50,000 in annual revenue will pay $25 per quarter in tax.
The Business Profit Tax is set at 12% and banks will be taxed 20% BPT. All businesses currently pay 4% Gross Revenue Tax or tax paid on gross sales.
In addition, under the new regime, no tax is assessed on exports, fixed capital, or investment goods.
Legislation also changed the income tax rate to 10% for salaries ranging from $8,000 to $50,000 per year. A 6% wage and salary tax will be assessed on anyone making up to $8,000 a year, but this tax will be returned 100% to any Palauan who made $10,000 or less.
Anyone making $50,000 or more will be taxed 12%.
This proposed tax regime is expected to support Palau’s economic growth while ensuring that people are not unnecessarily burdened by taxes.
The legislation is one of the requirements of the concessionary loans that Palau is receiving from the Asian Development Bank during the pandemic. mbj
