WhippsThe Palau Goods and Services Tax took effect Jan. 1, 2023.
President Surangel S. Whipps, Jr. and Bureau of Revenue & Taxation Director Elway Ikeda said in a press release that the new tax system “aims to ensure a fair and equitable tax system.”
While some local businesses have noted that prices would increase by the same 10% that the PGST requires, Whipps and Ikeda warn that the new tax replaces one that businesses should already be paying. Officials are reiterating that the PGST replaces the current import tax and that excessive price increases would be illegal. The cost of goods should not increase by 10%,” Whipps said.
The PGST is part of the larger tax reform. Republic of Palau Public Law 11-11 was passed by the Olbiil Era Kelulau – the Palau Congress and signed by Whipps in September 2021. A Business Profits Tax will replace Gross Revenue Tax for those who register for PGST. Upon signing the bill into law, Whipps said that the PGST is required to access the last tranche of $15 million from the Asian Development Bank’s policy-based loan to the Palau government, among other reasons, according to Journal files.
This is Palau’s first tax reform since the trust territory days and aims to help make tax payments more equitable among large and small businesses, according to Journal files. The new law or the value-added tax regime, otherwise known as the Palau Goods and Services Tax will replace the Gross Revenue Tax that the nation has been using for more than 30 years. Like other governments tax programs, Palau’s national government relies on tax collections to fund operations, as well as pay debts and obligations.
Businesses are required to register for PGST if they meet any of the following conditions:
• you have an average annual taxable supply of more than $300,000. (See PGST registration guide at for more information at www.palaugov.pw/taxreform/pgst-registration. • you hold a Foreign Investment Approval Certificate, even if you are below the registration threshold amount; • you are one of the following State-owned enterprises: Palau Public Utilities Corp., Palau National Communications Corp., or the Belau Submarine Cable Corp. Under the PGST, a special rules section provides for the monitoring of prices. It is intended to ensure there is no unjustified and excessive increase in prices in Palau during the transition to PGST.
These rules apply to the supply of goods and services in the period July 1, 2022, to Dec. 31, 2023.
These supplies are referred to as a “regulated supply,” according to the government website. Ikeda said businesses “must be careful to make any price changes taking into account the overall impact of the tax changes.
“We’ll be watching,” he said.
The penalty for making a regulated supply for an excessive price is a fine not exceeding $10,000 for the first breach of this subsection and a fine not exceeding $20,000 for the second and each subsequent breach.
Also, under the new law:
Businesses with annual revenue of more than $50,000 but less than $300,000 will pay 4% GRT or the same tax as is collected currently.
Businesses with less than $50,000 in annual revenue will pay $25 per quarter in tax.
The Business Profit Tax is set at 12%. All businesses currently pay 4% Gross Revenue Tax or taxpaid on gross sales.
In addition, under the new regime, no tax is assessed on exports, fixed capital, or investment goods.
Legislation also changed the income tax rate to 10% for salaries ranging from $8,000 to $50,000 per year. A 6% wage and salary tax will be assessed on anyone making up to $8,000 a year, but this tax will be returned 100% to any Palauan who made $10,000 or less.
Anyone making $50,000 or more will be taxed 12%. mbj
