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KOROR, Palau – Excise taxes on local bottled water have been eliminated under a recently passed supplementary budget law, a move aimed at boosting domestic manufacturers. The change is expected to reduce prices for consumers by 20 to 25 percent.
Bottled water companies no longer need to declare or pay excise tax, which was previously set at 25 per cent of the taxable value of bottled water, the tax office confirmed in a public service announcement.
The bureau hopes that domestic water producers will adjust prices accordingly. However, director general Elway Ikeda clarified that there is no mechanism to force price cuts. Companies in Palau have already been penalized for falsely reporting taxes as justification for high prices.
“They are free to set prices, as any free market would allow,” Ikeda said in an email interview. “I believe competition, including from imported bottled water, will force manufacturers to adjust.”
The tax break is estimated to cost the government between $185,000 (for the amount collected in 2023) and $200,000 (for the amount expected to be collected in 2024). Ikeda noted that the tax was only recently increased as part of a comprehensive tax reform in 2023. The $185,000 collected last year was less than 1% of Palau’s total tax revenue.
Importantly, only the domestic excise tax is being scrapped. The country’s goods and services tax will still apply to bottled water. Since the excise tax is 25% of the ex-factory price, “one would expect store prices of bottled water to be reduced by about 20-25%,” Ikeda said.
The change is part of a supplementary budget recently passed by Palau’s legislature and signed into law by President Surangel S. Whipps on June 10. (By LN Reklai)
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