Koror, Palau – Palau National Communications Corporation (PNCC) swallowed much of the new Palau Goods and Services Tax (PGST) to shield customers but now faces a profitability squeeze, forcing price hikes next year, according to its letter to Senate Committee Chairman Senator Lentcer Basilius on Banking, Insurance, and Other Financial Matters.
While other businesses passed on the full 10% PGST implemented in January, PNCC absorbed 4%, leading to only a 6% price increase for its core products like mobile data and internet. This decision, the first rate increase in over 15 years, aimed to minimize customer impact, according to a company statement.
However, the move came at a steep cost. PNCC’s total tax bill (excluding payroll taxes) exploded 191% year-on-year in 2023, reaching $1 million. The company’s net position, excluding depreciation, is forecast to drop 34% to $731,000 by year-end.
“PNCC has fully supported PGST while trying to limit its impact on our customers,” the statement said. “The impact to PNCC itself is an increase in direct and indirect taxation of $712,858 or 191% Year-On-Year.”
To cope, PNCC tightened operations and renegotiated supplier contracts. However, it acknowledges the need for significant price adjustments in 2024 to ensure sustainability and reinvestment in critical infrastructure and service quality.
The company is also seeking an exemption from PGST on imported and local goods and services for its ongoing multi-million dollar infrastructure projects, funded by US grants. Absorbing PGST on these projects would add over $5 million to costs already not factored in grant applications.
“The removal of the requirement to pay PGST on these grant-funded infrastructure projects is essential to our ability to successfully implement,” the statement said.