PALIKIR, Pohnpei—In a Presidential Order dated July 1st, 2021, and amended July 5th, 2021, His Excellency David W. Panuelo, President of the Federated States of Micronesia (FSM), has established the National Tax Reform Commission. The purpose of the Commission is to find a means to improve citizens’ livelihoods, expand and update the Nation’s revenue base, and attain or implement the equitable sharing of revenue between the Nation’s States of Yap, Chuuk, Pohnpei, and Kosrae.
The Commission has five duties and responsibilities.
The first duty and responsibility is that the Commission is mandated to conduct a study on the existing taxation system in the FSM at both the National and State levels, with a view towards analyzing and identifying its strengths and weaknesses, and also to determine critical opportunities for improvements and adjustments.
The second duty and responsibility is that the Commission is mandated to conduct consultation in the FSM’s States, and with the private sector, regarding tax reform issues, considering inputs and recommendations from the consultation process.
The third duty and responsibility is that the Commission is mandated to identify options and avenues to reform the tax system, taking into consideration the need to encourage foreign investment and business expansion opportunities.
The fourth duty and responsibility is that the Commission is mandated to recommend options to expand the revenue base and to attain or implement equitable sharing of revenue.
The fifth duty and responsibility is that the Commission is to report to the President in a timely manner, defined as no later than six months from the issuance of the Presidential Order (i.e. any time before January 1st, 2022) on its findings and recommendations, including legislative proposals for consideration by the FSM Congress and State Legislatures, including any amendments to the existing tax laws and regulations.
The National Tax Reform Commission is comprised of the Secretary of the Department of Finance & Administration, who will serve as the Chair of the Commission; the Secretary of the Department of Justice or designee; the Secretary of the Department of Resources & Development or designee; a representative from the FSM Congress as designated by the Speaker; one representative each from the States of Yap, Chuuk, Pohnpei, and Kosrae, as designated by their respective Governors; one representative from the FSM Association of Chambers of Commerce, as designated by the President of the FSM; four representatives from the State Chambers of Commerce (one from each State), as designated by the President upon consultation with the private sector; and one representative from the Office of the President’s Division of Public Information (i.e. FSM PIO).
“It could be argued that the Nation’s taxes currently administered by the National Government are outdated and inadequate for our country’s needs,” President Panuelo said in a statement. “The existing tax system does not favor broad sources of revenue, and does not provide strong economic incentives for businesses. Our poorest wage-earners, including minimum wage employees across the country, pay income taxes automatically through their paychecks—despite the extra ten or twenty dollars per pay period being the difference between being food secure and food insecure—while many citizens pay no tax because their income is not reported. I am confident, and deeply worried, that the status quo will impose a heavy burden on future generations unless tax reforms are implemented.”
“Everybody has an opinion about tax,” the President continued, “Because taxes affect everybody and virtually all the time, from your actual hourly wage to the price of the chicken you eat before getting into your imported car using imported gasoline to get to the store to purchase imported lumber and imported electronics. Businesses need to worry about national tax and state tax and gross revenue tax and income tax and social security tax and import tax, and I’m sure I’m forgetting other types of tax. The Nation needs budgetary support for the delivery of social services, but we also need to ensure that our system is effective, business-friendly, fair, and equitable. Just as important, our tax system needs to be so transparent that we can explain it in simple language.”
“I respectfully request the FSM Congress and the Governors of the Nation’s States to appoint their representatives at the nearest and most practical opportunity, so that the National Tax Reform Commission can begin this deeply important work for our citizens.”
The Presidential Order establishing the National Tax Reform Commission may be found here:
The amendment to the Presidential Order establishing the National Tax Reform Commission may be found here: