Government of the Federated States of Micronesia

Income tax incentive vetoed along with four others

Palikir, POHNPEI (FSM Information Services): January 7, 2005 - President Joseph J. Urusemal has vetoed several measures transmitted by the Fourth Regular Session of the 13th Congress of the Federated States of Micronesia held in October 2004.

Foremost among the President's vetoes were two measures, the first (CA No. 13-70), proposed to create an income tax incentive for "large foreign corporations to incorporate in the FSM," while the second (CA No. 13-74), aimed at expanding the duties of the Registrar of Corporations to include " promoting and facilitating the formation of major corporations in the FSM."

President Urusemal noted that while the intends of the tax incentive was to explore new means of generating local revenue, he was concerned that the costs of enacting such legislations "outweigh any potential benefits."

Also vetoed was a measure proposed to establish a Compact Management Board and to create an Office of Compact Management. Congressional Act No. 13-88 is a combination of two bills introduced in Congress, one by Congress itself and the other from the Executive Branch, to address concerns regarding the selection of and assistance to JEMCO representatives and the implementation and management of Compact Funds.

The President's veto message expressed appreciation for the joint effort - but cautioned against the problems that may be inadvertently created by the new measure. Among his noted concerns were, the seeming discord the Act would have with existing State procedures, the legal and practical problems along with the various constitutional implications.

Another measure vetoed (CA No. 13-72), involved the change of funds appropriated for certain public projects in Election District 3 and 4 of the State of Chuuk.

The final veto (CA. No. 13-85) was a measure to bring the FSM's internal budgetary and financial procedures into compliance with the amended Compact. The President's veto message expressed that the Act introduced important and useful revisions to the existing law, but noted two significant problems contained within.

The President's first concern is based on provisions of the Act that mandated division of funds from 2007 on. In addition, the provisions also allowed a default division formula in the event of a discord. According to the President, not only does the provisions raise "significant separation of powers issue, but they disrupt a delicate yet effective system of political compromise that has evolved between the National government and the four States."

His other concern is based on the potential implications of a certain sub-section which allowed either the national or state governments the flexibility of rejecting a previously approved Sector Grant. The President noted that such flexibility by any one government may adversely affect the interest of the each of the governments or the nation as a whole. He urged the development of a mechanism that provides "a coordinated approach to the rejection of Compact funds in order to ensure that the interests of one government unit does not jeopardize the interest of others."

For further information on this release, please contact:

FSM Office of the President
Public Information: Press, Radio, Video
P.O Box 34
Palikir Station, Pohnpei, FM 96941
Tel.: (691) 320-2548/2092
Fax.: (691) 320-4356