While an extensive and comprehensive tax reform bill is undergoing a public education campaign by both the administration and Senate Ways & Means Committee, three Senators have introduced a shorter tax bill aimed only at raising taxes on restaurants and food vendors from 4% gross receipt tax to 10%. The bill also seeks to change salaries and wages tax.
The bill findings justify the tax increase on food service establishments as shifting “tax burden away from permanent residents towards short-term visitors and tourists to the country, as these visitors disproportionately patronize the various food service establishments.”
This finding does not address the current situation where there are no tourists and that bulk of customers of commercial food establishments are local customers.
The bill findings further justifies that since food items are not taxed and commercial food service establishments are using the untaxed items for business, they should pay more tax.
This bill applies to any commercial food and beverage businesses, such as restaurants, cafes, coffee shops, bistros, bars, and others that fit into the definition of food and beverage service establishment.
Additionally, the bill seeks to lower salary and wage tax for Palauans earning up to $8,000 dollars a year from 6% down to 4%. Amount $8,000 up to $30,000 is assessed 10% and amount over $30,000 is taxed 12%.
For foreign workers, salaries up to $8,000 a year is taxed 6% and any amount above that is taxed 12%. Moreover, it allocates 4% of income tax assessed from foreign workers’ salary to Bureau of Labor within the Ministry of Human Resources, Culture, Tourism and Development to support job training for Palauans.
Other than the cited findings, the four-page tax bill does not provide any studies or statistics on the estimated amount of new revenue the tax would create nor the impact on the food service industry, especially with the pandemic already wreaking havoc.
The bill was introduced by Senator Kerai Mariur, Senator Mark Rudimch and Senator Dr. Stevenson Kuartei this May 4th session.

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