Palau’s new tax law to cause ‘substantial impact’: Kyota

Frank Kyota. PHOTO: Pacific Power Association

The Palau Public Utilities Corporation (PPUC) has expressed concerns on the country’s new tax law on goods and services.

PPUC says the Palau Goods and Services Tax (PGST), going into effect on January 1, 2023, will have a “very substantial adverse impact” on PPUC customers and the corporation itself. 

In a letter to both Houses of the Olbiil Era Kelulau, PPUC CEO Frank Kyota requested OEK to amend the tax law, restoring PPUC’s tax-exempt status before the law comes into effect next year.

“We have become increasingly concerned about the very substantial adverse impacts that it (new tax law) will surely have upon both our customers and PPUC itself,” Kyota stated in the letter to lawmakers. 

The new tax law will change PPUC’s status to be like any other business, which according to PPUC, will require PPUC to charge 10% on top of its current rates and collect and pay that to the government. This, they say, does not include the increase in the cost of fuel that will certainly be charged to their suppliers and passed on to PPUC. 

“PPUC’s cost of fuel, our largest operating expense apart from salaries will jump by more than 5% as a result of the taxes, regardless of any other fuel price movements that may result from oil market and shipping cost volatility.” 

Kyota said that they do understand that the increase in fuel price will go up regardless due to the application of new taxes on their suppliers, but he said that when added to the implementation of the 10% PGST on customer tariffs, the “financial effect on the Palau public will be very serious.” 

The law also subjects PPUC to the new Business Profits Tax. This, under the new law, is 12% of net income. 

This, states the letter, is difficult for PPUC to predict the potential impact as they were never established as a commercial enterprise and have been mandated by law to recover operating costs and the cost of capital. 

“As such, and as with all other tax impacts, we would be required to factor any business profits taxes that we pay into the determination of our rates, and as always, it will be our customers who ultimately shoulder the cost of this,” added CEO Kyota. 

The new tax law mandates that 50% of the “carbon tax” or fuel tax goes to PPUC to subsidize electricity rates for Palauan households that consumes 0-150 kilowatt hours per month. Under the new tax law, the carbon tax is .02 cents per gallon, levied on all fuel products except propane and butane. 

PPUC questions the logic of generating government revenue by imposing taxes on PPUC, which in turn, exacerbates the demand for more subsidies. 

PPUC requests that the law be amended to allow PPUC to do everything it can to keep the utility cost as low as possible.