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Palau cuts excise tax from locally bottled water

 By Jayvee Vallejera


Palau has removed the excise tax being levied on locally bottled water effective immediately, resulting in an estimated price cut of about 20 to 25 percent.

In a move to help local bottled water manufacturers, Palau’s Office of the President said in a Facebook post that all water bottlers in Palau are no longer required to file and pay excise tax on bottled water.

The excise tax is 25 percent of the excisable value of bottled water, according to a separate public service announcement from the country’s Bureau of Revenue and Taxation.

Palau’s Bureau of Revenue and Taxation said because of this, domestic water manufacturers are expected to make necessary changes to remove the inclusion of excise tax on the price of bottled water.

When asked if there is a mechanism to compel domestic water manufacturers to lower their prices as a result of this new law, the bureau's director, Elway Ikeda, said Palau businesses are already subject to penalty if they charge at certain prices and falsely claim tax as a reason.

“However, they are able to set their prices freely as any free market would allow. I believe that competition, including that with imported bottled water, would push manufacturers to adjust,” he said in an email interview.

This tax relief is estimated to cost the Palauan government between $185,000—which is the actual tax amount collected in 2023—and about $200,000—the estimated collection for 2024, Ikeda said, but there are currently no discussions on a countermeasure to offset the revenue loss.

He pointed out that the domestic excise on bottled water was only introduced as part of the comprehensive tax reform that took effect in 2023. That means 2023 was the first and only full year with this revenue source.

In fact, he said, the $185,000 in excise taxes collected on these products in 2023 formed less than 1% of Palau’s total tax revenue in 2023.

Ikeda said only the excise tax on domestic bottled water is being removed and the country’s Goods and Services Tax is still being collected on these products. Since the excise tax on domestically manufactured bottled water was 25 percent of the ex-factory price of the goods (selling price from factory), “one would expect a reduction of about 20-25 percent in the store price of bottled water.” 

This move is part of the supplemental budget that Palau’s legislature, the 11th Olbiil Era Kelulao or OEK, recently passed and was enacted into law by President Surangel S. Whipps Jr. on June 10.

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