Value-added tax (VAT) would reduce tax evasion by individuals, as the government will still push for tax reform by switching from gross receipt tax to VAT to bolster the government’s revenues.
Finance Minister Elbuchel Sadang told members of the media during the Pacific Media Assistance Scheme (Pacmas) Palau Media Budget Reporting Training program last week that they intend to reintroduce the VAT system. He said that the VAT was more fair taxation system.
Currently Palau is using the gross receipt tax system, which according to Sadang increases the likelihood of companies underreporting taxes.
Under the current system, a customer is paying for cost of goods, import tax (3%), GRT (4%) and company markup. Rightnow taxes are not punched in separately and therefore hidden.“You don’t even really know if the tax is there, you don’t even the know the profit margin, “ he said.
Several attempts have been made to pass legislation introducing a VAT to reform the country’s tax system, but has never moved forward.
Sadang said under the proposed reform, businesses register for VAT and the annual registration threshold is $100,000.Businesses with sales below the threshold has no VAT obligations, meaning they do not issue tax invoices, charge VAT and file VAT returns.
The Intentional Monetary Fund (IMF) last year has thrown its support behind the Palau government’s plan to modernize and increase the efficiency and fairness of the tax system.
The IMF agrees that it’s time for Palau to reform the existing GR and import and instead look into measures including the introduction of VAT with a single rate and the Net Profit Tax.
The GST, which is also referred to as value-added tax (VAT) has long been proposed in Palau.
The VAT is supposed to replace the country’s 4 percent gross receipt tax and import tax of 3 percent.
Palau’s tax system has not been reformed since the Trust Territory days and tax reform will protect government revenues from tax evaders and create an equitable system of tax payment.
“The tax reform should aim to increase the efficiency and fairness of the tax system, and to mobilize domestic revenue, “ according to IMF. ( Bernadette H. Carreon)