Palau’s economic recovery amid the impact of COVID-19 remains fragile, according to the latest Asian Development Bank (ADB) Economic outlook.
According to the report, while tax reforms such as the VAT have driven an increase in tax revenues, the delay in the implementation of the Compact agreement and “political pushback” against the contribution of tax reform to the high inflation, recovery is still fragile.
“Nonetheless, the government acknowledges the need to stay the course of the recent reforms and control spending. An evaluation of the tax reform initiative will seek to initiate improvements to the new system and consider the imposition of a general personal income tax,” the report said.
It added that due to the tax reform, preliminary estimates indicate Palau Goods and Services Tax collections worth $17.2 million in FY2023, which is considerably higher than business gross receipts tax collections averaging $14.2 million during FY2017− FY2019.
With this, the report also said that the full recovery of the Palau tourism industry is uncertain because the country remains vulnerable to external shocks to food and fuel prices as well as disasters arising from natural hazards and climate change.
But, the report also recognizes Palau’s tax reforms as part of its fiscal strategy.