Palau Group Investigating Value Added Tax In New Zealand

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Trip meant to provide research for reform of Palau’s tax system

By Aurea Gerundio-Dizon

KOROR, Palau (Island Times, Sept. 19, 2013) – A seven-member delegation from Palau Congress is currently on a trip to New Zealand and Cook Islands to research about the Value Added Tax (VAT).

Sen. Surangel Whipps Jr., chairman of the Senate Committee on Ways and Means and Financial Matters, upon inquiry, provided information to Island Times regarding the purpose of their official trip.

Joining Whipps in this trip are Sen. Phillip Reklai (chairman of Tourism Development and Culture), Sen. Rukebai Inabo (chairman of Energy, Public Utilities and Infrastructure), Senate Legal Counsel Ebil Matsutaro, Del. Jonathan Isechal (chairman of House Committee on Ways and Means), Del. Lee Otobed (chairman of Community Planning and Development) and Del. Marino Ngemaes (chairman of Tourism and Aviation). Based on information from the Finance Ministry, the trip costs nearly $30,000.

According to Whipps, members of the Olbiil Era Kelulau (OEK) decided to undertake this research trip in order to decide on how to best reform Palau’s tax system.

He said that Palau’s tax system has not been reformed since the time it was a Trust Territory and most people are reportedly in agreement that an overhaul of Palau’s tax code is long overdue.

Currently, a bill amending the tax system is being considered in the Senate. "One option that we lawmakers are considering is that of the VAT, which stemmed from the introduction of Senate Bill No. 9-14 and is currently on second reading at the Senate Ways and Means Committee," Whipps said.

The senator said that soon after SB 9-14 was introduced, International Monetary Fund (IMF) assistance materialized in the form of a Pacific Financial Technical Assistance Centre (PFTAC) representative based in Fiji that arrived in Palau in May.

Moreover, in August of this year, a team from the IMF visited Palau to do a comprehensive economic review of the country. Whipps said that the result of that assistance was a draft report, draft legislation, and an offer to facilitate a research trip regarding the possibility of introducing the VAT to Palau as part of PFTAC’s ongoing consultation with Palau.

Whipps said that New Zealand and Cook Islands currently administer the most successful VAT system in the Pacific. The senator added that representatives from the IMF highly recommended that a delegation from Palau visit the two countries in order to research how the VAT tax is administered, as a way to gather ideas about how the same may be done in Palau.

Whipps said the Palau delegation will work with the Internal Revenue Departments (IRD) for both New Zealand and Cook Islands to determine whether or not VAT is relevant for a small island nation, as the government of Palau is considering implementing a VAT and would like to learn from the experiences of both countries.

The delegation, according to Whipps, will spend at least two days in New Zealand IRD and Cook Islands IRD as well as meet with organizations such as the Chamber of Commerce, Customs, the Ministry of Foreign Affairs and the Department of Tourism, to gain a sense of community support and compliance for VAT including an IT development company that specializes in tax management and IT systems – and other organizations deemed appropriate for the delegation to visit during their brief stay in New Zealand so that they can better understand and obtain relevant information on issues relevant to implementing the VAT, ease of administration, community compliance issues, viable alternatives to the VAT and so on.

"Tax reform is a complicated issue and requires understanding of the legislators so that effective and efficient legislation can be adopted. It is the responsibility of the Ways and Means Committee to research viable and fair options for tax reform in Palau," Whipps said.

Whipps said the delegation looks forward to informing the public more about their trip when they return to Palau.

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