Committee on Ways and Means holds oversight hearing with Tax Reform Taskforce

FSMIS (April 1, 2014): At around 1:30 in the afternoon of March 26, 2014, the Executive Steering Committee (ESC) for the FSM Tax Reform Project appeared in front of the Congressional Committee on Ways and Means at the Congress Committee Hearing Room in Palikir.

The hearing started out with a brief courtesy call on Congress Speaker Dohsis Halbert who thanked the Committee for their interest in meeting with him and noted the endeavors undertaken in progressing the tax reform movement up to the present.

Vice President Alik reciprocated complimentary remarks toward the Speaker and thanked him and Chairman Isaac Figir for the opportunity to appear before the Ways and Means Committee, availing time for both the ESC and the Committee to engage more on urgent matters relating to the over-10-year endeavor on reshaping the tax regime for the entire federation.

Discussions focused primarily on the March 31st deadline under the "sunset clause" of the Revenue Administration Act (RAA).

The ESC expressed its support of the request made by President Manny Mori in which he indicated to Congress his preference that the sunset clause be repealed from the act. However, the ESC also explained that it would settle for any decision that would prevent the triggering of the sunset clause and sustain the reform process.

Apart from deadline extension concerns, some Committee Members voiced skepticism over the proposed tax regime and asked that clear state-based scenarios be provided in terms of how these measures will directly impact consumers. Assisted by staff of the tax reform program office, Vice President Alik assured the Committee that apart from targeting acceptable revenue generation measures, the proposed regime also seeks to underpin potentials for a more business-friendly climate for local entrepreneurs and foreign investors. At present, not only are the governments running tax systems with varying characteristics, but also there remain several impediments that continue to hamper robust development and economic gains over the years.

A more sensitive point of discussion centered on the fact that Yap State and Pohnpei State, through their State Legislatures, have maintained their position against passing the Value Added Tax (VAT) legislation that the States of Chuuk and Kosrae have endorsed about a year ago. The ESC highlighted its interest in letting Chuuk and Kosrae implement the tax reform together with the FSM National Government. Through Chairman Figir, the Committee underscored caution against the tax reform implementation without having all the States endorsing the VAT as required by the sunset clause provision. This situation has created the stalemate for which some tax reform proponents, most notably the President himself, have called for affirmative action on removing the sunset clause from the RAA. Doing so will allow the incremental implementation of the reform measures by the entities that are ready while the other States continue assessing their respective position and possibly benefit from letting others test-run the proposed changes.

The hearing ended with both parties expressing mutual appreciation for the opportunity in engaging one another in face-to-face exchange of views and sharing of information.