With nearly two months remaining in his term, President Tommy E. Remengesau Jr. submitted a tax reform bill, the Palau Goods and Services Tax (PGST), a value-added tax system, to Olbiil Era Kelulau (OEK) and not for the first time.
In his transmittal letters to both Senate President Hokkons Baules and House Speaker Sabino Anastacio, he said that the “pandemic has exposed the vulnerabilities of our economy, and revealed key areas for improvement…This is the time to improve our business climate by establishing corporate registry, by developing a system for international commercial arbitration, by improving the resiliency of core sectors and by reforming our tax code.”
It is not the first time that the proposals have been made by Remengesau administration to OEK in the past 13 years. A similar tax reform bill was introduced in the 7th and 9th OEK with intent to replace an outdated Gross Receipt Tax system that Palau still uses to this day. In the 9th OEK, education on the proposed bill was done extensively throughout all the States in Palau but failed to pass congress.
According to transmittal letters, finding from the study of Palau’s tax regime during the 7th government that still holds true today is that the tax system in place today (GRT) “favors large, established, vertically-integrated businesses, while disadvantaging small startups, family businesses and boutique operations.”
Additionally it says “the 2007 Task Force found that GRT discourages international investment.”
“13 years and 3 Constitutional Governments later, Palau is still working to encourage local start-ups and small businesses. Palau is still working to encourage new foreign investment. And unfortunately, Palau is also still collecting GRT,” state the letters.
Remengesau in spite of limited time remaining in his term pushed OEK to work with him on the issues. He said that in doing so, they can lay the foundation for the 11th Government to build on in 2021 and forward.
Using his signature phrase, Remengesau said that “we have worked hard to preserve the best, we can work harder to improve the rest.”
Introduction of a tax reform legislation is one of the requisites for drawing down the second tranche ($20m) of the concessionary loan offered by Asian Development Bank to Palau. The final tranche requires enactment of the legislation into law.

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