KOROR, Palau—Under the recently passed supplemental budget law, the Excise tax on locally bottled water has been removed, a move aimed at boosting domestic manufacturers. The change is expected to reduce prices for consumers by 20% to 25%.
Water bottling companies are no longer required to file or pay the excise tax. The tax, previously set at 25% of the excisable value of bottled water, was confirmed by the Bureau of Revenue and Taxation in a public service announcement.
The bureau expects domestic water producers to adjust their prices accordingly. However, Director Elway Ikeda clarified that there’s no mechanism to force price reductions. Businesses in Palau are already subject to penalties for falsely claiming tax as a reason for high prices.
“They are able to set their prices freely, as any free market would allow,” Ikeda said in an email interview. “I believe competition, including that imported bottled water, would push manufacturers to adjust.”
The tax relief is estimated to cost the government between $185,000, the amount collected in 2023, and $200,000, the projected collection for 2024. Ikeda noted that the tax was a recent addition, implemented as part of a comprehensive tax reform in 2023. The $185,000 collected last year amounted to less than 1% of Palau’s total tax revenue.
Importantly, only the domestic excise tax is being removed. The country’s Goods and Services Tax will still apply to bottled water. Since the excise tax was 25% of the ex-factory price, “one would expect a reduction of about 20-25% in the store price of bottled water,” Ikeda said.
This change is part of a supplemental budget recently passed by Palau’s legislature and signed into law by President Surangel S. Whipps Jr. on June 10. (By: L.N. Reklai)