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FSM Tax Reform Continues to Move Forward

Palikir, Pohnpei (FSM Information Services): October 28, 2009 - The Technical Working Group (TWG) and the Executive Steering Committee (ESC) met in Guam in late August to continue their review and deliberations of the proposed tax reform laws for the FSM.

The Honorable Alik L. Alik, Vice President of the FSM and Chairman of the ESC presided over the ESC meeting which, in addition to the ESC members, included members of The Pacific Financial Technical Assistance Centre (PFTAC), the FSM Consul General in Guam, and the TWG. The state representatives on the ESC are the respective governors or their representative.

The agenda items included a presentation by the PFTAC representatives regarding the Net Profits Tax (NPT), the Value Added Tax (VAT) and a salaries tax withholding threshold. They also reviewed their recommendations on the proposed new tax administration processes and options for the structure of the Unified Revenue Authority (URA). PFTAC underscored the fact that voluntary compliance will be an integral component of the tax law reforms and future tax administration.

As a result of the preceding TWG meetings, which reviewed tax technical issues, certain options and recommendations were presented by the TWG to the ESC for their consideration. The ESC reviewed various technical alterations then endorsed the NPT draft - other than one section which will be reviewed by the TWG with a report-back to the ESC. The TWG presented two options, along with a recommendation to the ESC regarding the application of VAT to interstate trade. After review and evaluation the ESC adopted the TWG's recommendation on this issue.

The ESC and the TWG had discussions regarding the timeframes for the finalization of the law drafts which require ESC approval before submission to the President, the National Congress, and the state legislatures.

Closing statements were made by all the ESC State Governors thanking the TWG and PFTAC for their hard work and accomplishments to date. Vice President Alik's closing comments included remarks on the scope and the significance of the task ahead to reform the FSM tax regime. Progress continues to be made and in the near future will involve transmittal of the package of legislations to the President, the National Congress, and the state legislatures.