The president sent back Senate Bill 8-41, SD1 to the Olbiil Era Kelulau for further considerations with recommendations for amendments.
In his referral letter, Toribiong said the measure contains several glaring deficiencies and problems.He said there are uncertainties of the measure’s effect on the level of local tax revenues that the National government will collect if it to become law.Under the measure, a tax of 26 percent will be imposed on all corporations except those corporation whose corporation’s shareholders equity or paid in capital as of beginning of its taxable year is less than $1,000,000 and the shareholder equity of the Palau’s Corporation control group is less than $10,000,000.In the president’s referral letter, he cited that it is unclear whether the effect of this bill will be to enhance or decrease local revenues or be revenue neutral.He also noted that there appears to have no hearing that has been made nor comments solicited.“What corporations doing business in Palau will be affected by this bill, have those corporations been identified, have those corporations been asked for their comments?,” Toribiong asked in the letter.He said that the committee report made by the OEK assumed that changing the type of tax and increasing tax rate will result in higher revenues.The president said that in order to determine taxable net income, a taxpayer is allowed to apply a long list of deductions to its gross income that it may even be reduced to zero.The president said the OEK needs to amend the findings of the bill to ensure that the effect of the bill is not to decrease the revenues.He added that changes made to the period of payment would also result to severe cash flow problems for the country.The bill changes the time of payment from quarterly to yearly.He also noted that the bill needs to be amended to specify the allowable deductions that can be applied to gross income in order to determine the taxable net income of the taxpayer.The letter also noted that the tax created by the bill is not uniformly applied because the bill exempts certain corporations.He cited an example of a two principal owned Palauan-owned wholesalers and retailers in Palau. The size of the business are similar but one does the business in a form of corporation while the other does a business as a sole proprietorship.He said if the bill’s intent is to tax a corporation entity, then the family owned entity has a competitive advantage.He also cited the problem with the bill not providing a transition from the current gross revenue tax system to the proposed income tax system.
