House of Delegates introduced a bill to cut business Gross Receipt Tax (GRT) from 4% to 2% for the remaining three quarters of this fiscal year, from January 1, 2020 to September 30, 2020.
The intent of the bill is to provide tax relief to businesses, professions and financial institutions due the impact of the coronavirus COVID-19 on global and local commerce.
“The threat of coronavirus (COVId-19) has disrupted commerce and business globally, particularly tourism and travel. Many of our local businesses are struggling and will continue to struggle as the threat of COVID-19 continues,” states the bill finding.
The bill says that taxes assessed of the business from January 1, 2020 to September 30, 2020 shall be 2%. The bill also would allow anyone that had paid the 4% taxes for the January 1st period to get refunds back.
Gross Receipt Tax is charged on all income earned by each business during a certain period. Only deduction allowed before taxes are paid are local salaries and up to $3,000 of foreign worker salaries each quarter. The remaining income is taxed 4%. The bill seeks to reduce this to 2%.
The bill passed second reading and number of floor amendments were added including gradual cuts such as completely waiving taxes of anyone who claimed $25K and below in FY 2019, apply 2% cut to companies with income of up to $1 million in FY 2019 and 3% for those above $1 million. The bill is up for 3rd reading before it goes to the Senate.
The COVID-19 Impact Mitigation Working Group, a group created by leadership to provide recommendations for mitigating impact of the COVID-19 is working on specific remedies to be recommended to Palau’s national leadership.
The specific remedies and measures have not been revealed but recommendations to use funding sources such as the $15 million disaster relief fund from ADB and the $23 million reserve funds to address some of these remedies was revealed at yesterday’s press conference.
“We don’t want yet to reveal the specifics until the leadership has seen and approved the recommendations. We don’t want to raise false hopes,” expressed Minister
Elbuchel Sadang from the Ministry of Finance.
Earlier released preliminary assessment from the COVId-10 Impact Working Group stated that the expected loss government revenue as result of the impact will be about $45 million dollars. GDP is expected to drop by 23%, 10% this year and 13% next year. Estimated 1,900 jobs will be gone, 700 locals and 1,200 foreign workers.
During meeting between national Executive Branch and Legislative Branch last week, it was general consensus that funding from outside sources will be needed to address the economic impact of COVID-19 on Palau.