FSM Tax Reform Executive Steering Committee considers scenarios to address "sunset clause"

L-R: Mr. Palik, Gov. Elimo, Gov. Jackson, and Gov.Ehsa

FSMIS (March 29): On March 26, the Federated States of Micronesian Tax Reform Program Executive Steering Committee (ESC) gathered at the 7-Star Hotel Conference Room in the State of Pohnpei to address  once more the probable fate of the tax reform overhaul endeavor that has taken the five Governments in the Federation on a  bumpy and costly over-10-year road of indecisiveness.

Joining the ESC and the Tax Reform Program Office management at the meeting was the Unified Revenue Administration (URA) Board of Directors to benefit from the briefing in terms of the status of the tax reform project and other matters.

The URA Board is comprised of Mr. Aren Palik (Chairman -- Kosrae), Mr. Winiplat Bisalen (member -- Chuuk), and Ms Maria Laaw (member -- Yap) and Secretary Kensley Ikosia (member-FSM). A replacement for Mr. Thomas Pablo from the State of Pohnpei is yet to be named.

At this meeting, FSM Vice President Alik L. Alik, Chairman of the ESC, with assistance from the Tax Reform Program Office staff, led the discussions on the status of the Revenue Administration Act (RAA) sunset clause with specific regard to two proposed legislations being viewed by the FSM Congress affecting such clause.

The RAA sunset clause essentially stipulates that in order for the tax reform to be implemented, all four States in the FSM must have enacted their Value Added Tax before midnight of March 31, 2014 or else the tax reform project is null and void.

Given the impending March 31st deadline, the ESC considered tenable optional way-forward as recommendation to the FSM President and reaffirmed consensus among the State Governors who comprise the ESC to ensure a solitary front in dealing with stakeholders to the proposed tax system, more immediately the FSM Congress.

The ESC assessed course of actions in the case the deadline is triggered and the project ceases. This includes the timeline for the transitioning from the Customs and Tax Administration Unit under the Department of Finance and Administration to the Unified Revenue Administration as mandated under the FSM URA Act of 2012.

As the States of Yap and Pohnpei have yet to pass their VAT Tax, the meeting provided a forum for the Governors of these respective States to acquaint their peers on the status of such measure at their jurisdictions. Consequently, Governor John Ehsa informed the committee that the VAT bill had been recently recommitted back to the Finance Committee after the Pohnpei State Legislature took a thorough review and sensed the need for more Committee work. While Governor Ehsa remains optimistic, there is no clear indication that the bill will be given blessing by the Pohnpei State Legislature sooner than later.

For the Sate of Yap, Governor Sebastian Anefal had difficulty finding a better way in informing his colleagues that the Yap State Legislature is pretty firm in viewing the tax reform project as inconsistent with certain provisions of the Yap State Constitution. However, staff from the Tax Reform Program Office pointed out that the Yap State Attorney General's Office had issued a legal opinion that contradicts the view maintained by the Yap State Legislature.

Given the uncertainty regarding the fate of the VAT legislations with States of Yap and Pohnpei and based on the wealth of  information in front of the ESC deriving from comparative review of tax regimes throughout the region over a long period of time, the Leaders agreed to maintain a position in favor of the reform as proposed and further agreed to urge Congress to amend relevant parts of the RAA prohibiting the States of Chuuk and Kosrae, along with the FSM National Government, to administer a tax system under the Unified Revenue Administration.  

In addition, Vice President Alik reminded the committee members of the oversight hearing scheduled by the Congressional Committee on Ways and Means in relation to a bill by Senator Isaac Figir proposing to delay the sunset clause to May 2015. The ESC had been made aware of President Manny Mori's preference that the sunset clause is altogether repealed. This position by the President has also been communicated to Congress for their consideration during the on-going Third Special Session.

Vice President Alik urged the ESC members, particular staff of the Tax Reform Program Office, as well as the URA Board members to make themselves available during the oversight hearing with Congress in the afternoon to assist in presenting the ESC recommendations and seek the support of Congress regarding the recommendations.

Additionally, the members were informed of the courtesy call on President Mori the morning of March 27.

The meeting ended with ESC members underscoring their fidelity to the tax reform initiatives and expressing confidence that softening of the  sunset clause will give everyone the chance to progress further together.

For further information, call 320-2548 or email fsmpio@mail.fm.