The International Monetary Fund has recommended that Palau enact a comprehensive tax reform bill, including the introduction of a value-added tax.
Tax-News.com reports that growth in Palau stagnated in the past year due to a decline in construction and tourism.
The IMF says a more substantial fiscal adjustment will be needed to ensure long-term fiscal sustainability for Palau in view of the expiration of the Compact of Free Association with the United States in 2024.
Revenue collection is described by the IMF as relying too heavily on tourism.
The IMF has encouraged the government to enact, as soon as possible, a comprehensive tax reform bill, which it says could enable a significant increase in budget resources.
The IMF wants Palau to replace gross revenue tax with a single rate value added tax, with no exemptions except for exports; and to reduce wage and salary tax rates for low income households to offset price increases from the adoption of VAT.