Ten days after the new tax law went into effect, Senate introduced a bill seeking to postpone the implementation to 2025.
Senate bill 11-79 seeks to amend the Republic of Palau Public Law (RPPL) 11-11, the Palau Goods and Services Tax Act, “to allow for more time for implementation and awareness.”
The legislative findings in the bill state, “Proper implementation of a value-added tax requires extensive training and education, both in government and private sector. Without sufficient training and education, it can cause substantial disturbance to the economy.”
“Inflation in most major currencies is currently at multi-decade highs; the Republic had an inflation rate of 11.9% during the first quarter of 2022,” added the bill. “Consumers, whose wages are often far slower to increase, have experienced this inflation at the shopping counter and at the fuel pump; those who can least afford it were forced to dig deeper into their pockets just to make ends meet.”
The bill warns, “ The transition from gross receipts tax to value-added taxation, at a time when tourism has not yet recovered, threatens to lead to market regression and extended recession in vital industry.”
The law, enacted in 2021, gave a one-year transition period for the government to make all preparations to transition the country from the GRT system to PGST or VAT type of taxation.
The bill claims that the government did not adequately prepare the private and government sector for the transition.
Whipps had agreed that prices of goods would increase “slightly” as a result of the new tax regime but also said that some item prices may go down due to the new tax “because businesses will be able to offset certain business expenses such as leases or rentals.
Furthermore, he said that the law took into account the impact on lower-income people by returning up to 10% of their paid income taxes at the end of the year and providing social assistance to those involved in informal sector (makit).
PGST-licensed businesses have mixed reactions, with some favoring the change and others supporting the new law.
“I’ve been losing money since the pandemic, yet I still have to pay taxes. This will help me stop that bleeding until I can recover,” expressed a local retailer. Another said it was too late, as they had ordered new systems to support the PGST system.
Another retailer with multiple outlets expressed frustration with the new system. “They tell me to do this and that, but it is just too complicated. I’ve multiple businesses with different products. This is just too much,” added the retailer. Business owners did not want their names or
businesses named in the article.
Nearly all of the consumers interviewed had complaints about the new tax, attributing the high cost of goods to the new tax system. Most believe they are being taken advantage of by the new tax regime because they lack knowledge and understanding of how the new tax is applied.
Director Elway Ikeda of the Revenue & Taxation said they had shifted their focus to the consumers impacted by the tax increase, hearing them out and responding to their questions and concerns.
In addition, Ikeda said the tax office will not be citing businesses this year for honest mistakes. Rather they will be helping them convert to the new system.
The government raised the minimum wage for the government last October, and Whipps said raising the minimum wage across the board is his administration’s priority this year.