A bill to exempt Palau Public Utilities Corporation (PPUC), Palau National Communications Corporation (PNCC), and Belau Submarine Cable Corporation (BSCC), the three largest state-owned enterprises from Palau Goods and Services Tax (PGST), was introduced in the Senate.

The proposal seeks to make autonomous government entities from tax obligations with the intent to provide affordable services to customers.

The findings in the bill state, “The fundamental intent in establishing these autonomous entities was to free them from politics and to provide efficient and affordable services to customers, referring to standing committee reports of the original laws creating PPUC and PNCC.

In July of 2022, PPUC CEO Frank Kyota wrote a letter to Olbiil era Kelulau expressing concern about the impact of PGST tax on PPUC customers, saying, “We have become increasingly concerned about the very substantial adverse impacts that it (new tax law) will surely have upon both our customers and PPUC itself,” and asked OEK to restore PPUC’s tax-exempt status.

He noted some contributing factors, including the tax on the cost of fuel added to the cost of operations and the income tax passed on to consumers.

President Surangel Whipps Jr. supported PPUC’s PGST status saying that it should be operated like a business as intended by law to be self-sufficient.

In the draft bill recently proposed, OEK said that the presentation of the Minister of Finance Udui regarding the impact of the PGST said, “the government will not lose revenue, and the people will not be unnecessarily burdened with new additional taxes …PGST offers a well-rounded innovative tax system that complements our economic growth.”

But according to the Senate bill, “since the implementation of the PGST Act, individuals and families have felt the impact of the new tax regime in their daily lives.  It has contributed partly to the increase in the cost of living, as electricity and communication are essential services in daily living.  …Therefore, the Olbiil era Kelulau finds it necessary to exempt PPUC, PNCC, and BSCC from PGST to alleviate the financial impact on families’ cost of living.”

The proposal also exempts supplies made by contractors to PPUC, PNCC, and BSCC, except for supplies of solar energy power producers, from PGST.  Contractors can apply for a full refund of all PGST-paid inputs on supplies made to PPUC, PNCC, and BSCC.

The bill passed its first reading in the Senate and was assigned to Ways & Means Committee.

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