The complex new tax reform proposal is welcomed by many in the business community, due to the plan’s proposal to allow deductions of business operating expenses before taxes.

Despite the introduction of business profit tax in the new plan, many business operators believe that the ability to deduct costs before taxes will be better for business.

“I own a restaurant and if I can deduct all of my employees’ salaries before taxes, it will really be a big help to my business,” stated Shinji Chibana at the Tax Reform Symposium yesterday, conducted by Palau’s Ministry of Finance and Palau Chamber of Commerce.

Most of the restaurants that were catering to tourists have closed due to the low number of customers and high operating expenses such as salaries, rent, utilities and others.

The proposed tax reform bill, if passed, will take effect in January of 2023. One business owner believes that this is too far off.

Junior Ueki of Belau Tours said that the proposed bill will really help businesses by allowing for deductions before taxes. “Why wait until 2023? We need help now. Deduction of operating expenses such as salaries, utilities and others are really needed now that we are in a difficult time.”

However, not everyone feels that the tax reform is needed now. Alfonso Dias of Dias Broadcasting said that this was not the time to implement a new tax law. He said that business is hard now and now is not a good time to introduce new tax laws.

Another business owner said the proposal need more time to review while another said it requires a third party to study and make recommendations.

Ken Uehara of Palau Appraisal Associates said that this proposed tax reform bill is not new, that it has been introduced and studied in Palau since 2008.  He said he was a member of the first taskforce created to study it.  He added that passing the new tax reform is “once in a generation” opportunity to make a marked difference, like the transition from Trust Territory to independence and voting to accept the Compact of Free Association.

The proposed tax reform bill will change Palau’s outdated tax system from Gross Receipt Tax (GRT) to Palau Goods and Service Tax (PGST) or form a value-added tax.

Some of the major changes in the bill include removing import tax, imposing 10% goods and service tax, imposing business net income tax, changing wages and salaries tax, and introducing new excise and carbon tax.

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