With less than a month to go before the new tax law takes effect, businesses are petitioning the government to delay for at least three more years.

The implementation of the new tax regime, the Palau Goods and Services Tax -PGST, will cause undue hardship to low and middle-income Palauans and residents, warn a letter of a petition signed by over 400 business owners and addressed to President Surangel Whipps Jr., Senate President Hokkons Baules and House Speaker Sabino Anastacio.

The letter states that even without the new tax law, the prices of domestic goods have increased by 4% while imported goods have increased by 13.5%, citing a consumer price index report from the Ministry of Finance.

“Mandating consumers to pay an extra 10% for goods and increased prices in all utilities – which have already increased in price due to inflation and other factors beyond our control – will cause undue hardship to Palauans and residents of the Republic of Palau…Quite simply, the new tax law will hurt the people of Palau,” states the signed petition letter.

Furthermore, the letter states that the new tax law will exacerbate an already depressed economy that “has not seen growth in past several years and has been in recession.”

“Implementing a new tax system while we are in the middle of a recession and experiencing inflation will only speed out outmigration,” associating the effect of the new tax regime on the outmigration of Palau’s citizens

The petitioners request that the implementation of the new tax law be delayed for at least three years.  “Delaying the implementation of the tax system for at least three years may give enough time for the economy to recover and improve.”

President Whipps last week warned the businesses not to say that prices will increase by 10% due to the new tax law.  Businesses, he said, are already paying 4%, and at the most, they will be adding 6%, not 10%.  Businesses will be able to deduct their expenses which should also cut their costs – added Whipps.

The petitioners argue that that would mean 6% on top of already high inflation.  Utility costs, like power, water, and communications, will also add taxes on top of their rates come January, further raising the cost for consumers.

The new tax regime moves Palau from the 4% gross receipt tax that has been in place since the Trust Territory days to a value-added tax system, or Palau Goods & Services Tax.  It imposes 10% on all imported goods and services and requires all businesses with over $300k in annual revenue and FIAC-licensed companies to comply with it. Businesses with annual revenue below $300k can remain under the GRT system.  Businesses will be paying 12% of net income and will be allowed to deduct business expenses before paying taxes.

The law was enacted in 2021, given a year for transition to its implementation.  The Palau Goods & Services Tax takes full effect January 1st, 2023

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