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Federated States Of Micronesia To Adopt VAT

by Mike Godfrey,, Washington

24 March 2015

The Federated States of Micronesia could be the next island nation to confirm plans for a value-added tax (VAT), based on recent talks with the International Monetary Fund.

The IMF visited Pohnpei, one of the four island states, from March 9-20, 2015, to discuss fiscal and economic policy. The Fund noted that, from 2023, grants provided by the United States to the nation – as a US Associated State – will expire.

The IMF said: "While the authorities have recently produced the '2023 Action Plan' to better prepare for the expiration in 2023 of grants provided under the Compact of Free Association with the United States, its implementation hinges on achieving a national consensus and enacting the required legislative measures. On the upside, implementation of policy reforms included in the 2023 Action Plan could boost the economy while strengthening medium-term fiscal sustainability."

"The mission welcomes the fiscal consolidation efforts by the states under the Long-Term Fiscal Frameworks (LTFF) and the establishment of the Unified Revenue Authority (URA). However, the fiscal consolidation should be extended to the national government, and further efforts are required to achieve fiscal sustainability in the post 2023-period, on both the revenue and expenditure sides."

The IMF concluded: "Implementing the long-debated tax reform package, in particular, the adoption of a VAT in lieu of state sales taxes, and the introduction of a net income tax on corporations instead of the Gross Revenue Tax, remains critically important. Moreover, fiscal consolidation should be accompanied by improvement in the quality of public spending..."

TAGS: tax | investment | value added tax (VAT) | sales tax | tax reform | Micronesia, Federated States of | services | Tax

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