Overview:
Palau’s tax office is under scrutiny after failing to deliver key reports on tax-exempt companies, leaving lawmakers and prosecutors unable to complete required oversight. Questions are now growing over transparency, fairness, and lost government revenue.
Senate, prosecutors cite missing data, missed deadlines
By: L.N. Reklai
KOROR, Palau — Palau’s Bureau of Revenue and Taxation (BRT) is facing criticism for failing to provide timely and complete reports on tax-exempt companies, raising concerns about transparency, fairness and compliance with the law.
A review of official communications shows that for more than a year, key information requested by the Senate and the Office of the Special Prosecutor (OSP) was delayed or incomplete, preventing proper oversight of tax exemptions—particularly those linked to U.S. military-related projects under the Status of Forces Agreement (SOFA).
Lawmakers first requested a detailed five-year report in March 2025, including which companies received exemptions, the legal basis for those exemptions, and whether local businesses benefited. As of March 2026, much of that information had still not been fully provided.
The OSP also reported it could not complete a legally required review of tax exemptions due to missing data, despite repeated follow-ups. The review was mandated under Palau law and carried a firm deadline, which has now passed.
BRT acknowledged the delays, citing misunderstandings, limited staffing, and outdated record-keeping systems. The agency said it is working to improve its systems but admitted some requests remain unresolved.
Officials clarified that tax exemptions under SOFA apply only to U.S. forces, contractors and personnel. Local businesses and subcontractors do not qualify and must pay all applicable taxes, including business and wage taxes.
The situation has raised questions about fairness, as foreign contractors benefit from exemptions while local companies working on the same projects do not.
Another major concern is the lack of clear data on how much tax revenue the government has given up through these exemptions. Without that information, lawmakers and the public cannot assess the financial impact on the country.
The Senate has called for a full accounting and clearer reporting moving forward, warning that delays and gaps in information weaken public trust and hinder accountability.