Finance Minister Kaleb Udui Jr. has submitted recommendations to the proposed Palau Goods & Services Tax (PGST) bill to replace the current outdated tax regime with certain benefits.
The current tax system Palau has been using since the Trust Territory days is “inefficient and distortionary, discouraging private investment, particularly start-ups,” states an assessment by the Asian Development Bank.
The PGST bill was introduced toward the end of the 10th government but was not acted on. It was one of the first six bills introduced in the Senate this 11th government.
Whipps’ administration had said earlier that they were working on a more comprehensive reform that adds on to the proposed PGST.
The additions offered under the revised bill by the administration include 10% PGST tax, said to be revenue neutral, meaning that government revenue remains at the same level and no new taxes are imposed on the people.
Also, all businesses /taxpayers with over $300K annual revenue pay Palau Goods and Services Tax and Business Profit Tax. Businesses with more than $50K but less than $300K will pay 4% GRT, or the same tax as is collected currently. Businesses with less than $50K will pay only $25 per quarter tax.
Business Profit Tax will be 12% and banks will be taxed 20% BPT. All businesses currently pay 4% Gross Revenue Tax, or tax paid on gross sales.
In addition, under the new regime, no tax is assessed on exports, fixed capital, or investment goods.
The recommendations include reducing the income tax rate to 10% for salaries ranging from $8,000 to $50,000 per year. 6% wage and salary tax will be assessed on anyone making up to $8,000 a year, but this tax will be returned 100% to any Palauan who made $10,000 or less. Anyone making $50,000 or more will be taxed 12%.
The current income tax rate is 6% tax on income earned up to $8,000 and 12% on any amount above that.
All import taxes will be zero except for sin taxes, which will be placed under the Excise Tax category.
The change also includes a Carbon Tax, which will tax $.15 per gallon for fuel, replacing the current Fuel tax of $0.05 per gallon.
This proposed tax regime is expected to support Palau’s economic growth while ensuring that people are not unnecessarily burdened by taxes.
The bill is also one of the conditions of the concessionary loans that Palau is getting to address the pandemic impact.

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