Letter to the Editor: Tax Reform

Dear Editor:
The four States in the Nation constituting what is so called the Federated States of Micronesia are facing financial challenges while the parenthood is extravagantly enjoying an unprecedented surplus ever recorded in the history of this Nation. Even before reaching this unprecedented surplus level, numerous attempts have been made by the leaders of this federation to salvage the states from further slipping into insolvency and yet none has worked out up to this point in time.
One of the attempts was on tax reform to essentially establish a Unified Revenue Authority (URA) which would in essence centralize the revenue and tax divisions of the national and states into a single entity and placing it as a component unit of the National Government. This was one that I truly favor as it has a potential to work out well for all concerned. Even more so the States will benefit a little more compared to the current tax structure where the National level receives more share of the pie. The National Government has more sources of revenue coming into its treasury plus the fact now that the fishing fees and the corporate tax are drastically pouring in more monies lately.
The Mori Administration officially engaged in the implementation of the tax reform by establishing the URA to test it out. Although it was short lived, we have not had the fullest potential to test out its workability. But within a short testing period, there was a significant progress in the collection of our taxes. A sunset clause built into the National statue was expired and here we are at square one again maintaining the status quo of the old tax regime. The most critical reason why it is a must to reform our current tax structure was that the five governments were not and are still not able to collect forty percent of every one dollar supposedly due to our treasuries. This was not a made up story; it was a reoccurring finding audit after audit by external auditors. Reforming our tax laws at the state and national levels will enable our governments to collect the uncollectable (forty percent) under the current tax structure. The State of Pohnpei alone is projected to collect no less than five million dollars annually.
In a meeting held at the Legislature chamber arranged by the new Administration attended by the Vice-President of the Nation, this issue of tax reform was raised. Yes, it was clear that the sunset clause was lapsed but it does not necessarily mean that the National Government cannot revisit the issue and to revive it to assist the States with their financial constraints.
In the last States and National Leadership Conference held in the State of Kosrae, the issue of tax reform was brought up again by the State governments. I am grateful to acknowledge the strong support of the SNLC in its commitment to continue pursuing our efforts in this area of tax reform. The States look forward to its prompt implementation as this is a matter that is in our best interest to safeguard us from accumulating deficits as was revealed by a survey made by then a Statistic, Budget and Office of Compact Management economist.
The State governments are in dire need of generating more revenue streams to avoid further accumulation of deficit and at the same time support the necessary services our people deserve to receive. We have no choice at this juncture but to increase our current sales tax rates and/or the imposition of a new service tax. These are works in progress. This is the authority we have control over as it is within our jurisdictions. The consequence of this action by the States will translate to higher costs on all imported goods and services provided in the States. This action will burden all walks of life especially our disadvantaged citizens. I do not want this scenario to happen as it will severely have an impact on our disadvantaged citizens.
I am praying and hoping that our current FSM President and our current FSM Congress revitalize the tax reform namely the Unified Revenue Authority agreed to by the leaders of this Nation in 2003 to replace the existing tax system. This is an equitable tax scheme for all stakeholders which include the customers, businesses and of course our governments.
Did you know that the component of this tax reform applying to the businesses of the land has become a law of the Nation for about three years now?
After this component became law, our businesses started to pay their taxes based on their net profits. They previously paid their taxes on the gross receipt tax. This is a disadvantage for our governments because it means our businesses pay less amount of money on their taxes whereas it is an advantage for them as they are paying lesser amount of money on their taxes. So if the businesses have gotten their good share of the tax reform, when will the advantages apply to the customers and our governments be realized? It is only through the comprehensive implementation of the tax reform not a portion of it.
Revisiting the tax reform through its revival at the Nation level is a must do for the States. I have a strong conviction that the States will do their part in passing their legislations because we have no other option other than to pass sales tax increase in rates and/or establishing a new service tax for our survivability. I understand some of the States have already done some of it out of desperation not because they wanted to do so. I strongly believe that the most viable option for all of us to collectively undertake at this time and not to heavily burden our citizens most especially the disadvantaged ones is for our responsible leaders to revive the full context of the tax reform for the benefits of the people and governments of this Nation through the establishment of the Unified Revenue Authority.
The URA performed progressively well within such a short period of time. What is at stake in not having the other components of the URA become law of the Nation?
Ausen T. Lambert