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Tax Reform Legislations sent to Congress

Palikir, Pohnpei (FSM Information Services): April 20, 2010 - On the last day of the Third Special Session of the 16^th Congress, President Mori transmitted five pieces of legislation for the Congress to consider. These legislations are the results of the work of the Tax Executive Steering Committee (ESC), which is led by the Vice President and all four state governors sit on the committee. This set of enabling legislations was made to effectuate the recommendations of the Tax Reform Task Force at both the National and state levels. In addition to the FSM Congress, the four state legislatures will also be considering the legislations, which are meant to improve the tax administration and tax system of the FSM.

The proposed legislations that were submitted were specifically; the FSM Unified Revenue Authority (URA) Act, the Revenue Administration Act (RAA), the Net Profit Tax Act, the National VAT Act, and the Wages and Salaries Tax amendment to exempt the first $5,000 from everyone's salaries from taxes.

The legislations will make several changes to Title 54 of the FSM Code. The draft Net Profit Tax Act and the URA Act are proposed to enact new Chapters, 5 and 7, under Title 54. The draft Revenue Administration Act is proposed to amend, repeal and enact new provisions to Chapter 8. The National VAT Act is also proposed to amend Chapter 2 of Title 54 by repealing the import duties and in its place imposing a VAT on imports, which will be creditable against State VAT on subsequent supplies. There are also proposed amendments to Subchapter II and III (Taxation of Wages and Salaries) of Chapter 1.

President Mori has endorsed the concept and the recommendations of the Task Reform Task Force in the effort to improve the FMS's tax administration. In his transmittal letter to Speaker Figir, he wrote that he is very pleased with their work in putting together the various draft legislations after the assessment of the current tax legislations was done. He also commented that due to urgency and the requirement to meet certain deadlines, he is sending the draft legislations for Congressional review and consideration with the understanding that the Executive Branch will need to provide further comment on the bills at a later stage.

No action was taken on the draft legislations during the special session, but the Congress will hold public hearings before and during the next regular session in May to garner feedback on the individual pieces of the legislation.