Congressional Measures Readjust National Tax Structures

PALIKIR, POHNPEI. September 20, 2023.To cushion the Nation against the economic impacts of the new Constitutional Amendments, the Twenty Third Congress of the Federated States of Micronesia has passed measures to re-adjust the national tax structure.

On September 20, the Congresspassed Congressional Act (CA) 23-20, which called to change the percentage of revenue sharing between the National and State Governments on the collection of tax revenue.

In light of the new Constitutional Amendment requiring the revenues from fishing agreements to be divided equally between the National and State Governments, the Congress deemed it “an appropriate time to review and modify” certain aspects of the current structure of revenue sharing.  Under the law, the state governments receive eighty percent (80%) of the fuel tax collected; and fifty percent 50% of taxes from wage and salary, gross receipts and import duties, other than fuel taxes.

Through Public Law 18-107, the Congress had enacted an additional 20% to be added to the states’ 50% share of tax collected.  Therefore, beginning fiscal year 2016 the states’ share of taxes collected from wages and salary, gross receipt and import duties an increased from fifty percent (50%) to seventy percent (70%).  The states’ additional 20% share was deposited by the National Government into each State Government’s sub-account ‘A’ of the FSM Trust Fund with a provision that the funds are not to be withdrawn by the States.  During the COVID-19 pandemic the Law was amended to allow: ”on an extraordinary basis,” the extra 20% of the net tax collected during the fiscal year 2021, 2022, 2023 …to be made it available to the States for their use instead of being deposited into the states’ subaccount ‘A’ of the FSM Trust Fund.

Taking into account the new Constitutional Amendments, the Congress passed CA 23-20,to remove the extra 20% and return the revenue sharing to its original levels prior to FY-2016. Accordingly, the State Governments will maintain its eighty percent (80%)of the fuel tax collected and its original fifty percent (50%)of the wage and salary tax, gross receipts tax, and import duties other than the fuel tax.

The other measure on the national tax structure is CA 23-21, which called to zero out the deposits into the FSM Trust Fund from major corporation tax and from fishing access fees.

Under current law, fifty percent (50%) of major corporation tax and twenty percent (20%) of all National Government revenue derived from fishing access fees are automatically deposited into the FSM Trust Fund.

According to the Committee Report (SCR No. 23-17) on the measure, “in light of recent events, this is an appropriate timeto review and reconsider these automatic deposits into the FSM Trust Fund.  The Constitutional Amendment requiring the sharing of fishing access fees with the State Governments will have a substantial impact on the revenue available for National Government operations.

While the National Government is adjusting to the effects of the revenue decrease, your Committee finds this is an appropriate time to suspend the automatic deposits into the FSM Trust Fund, and notes that Congress can still make appropriations into the FSM Trust Fund as revenue allows.”

The Congress passed CA 23-21, to stop the automatic distributions to the FSM Trust Fund from the two revenue sources: taxes on major corporations and fishing access fees.

The two measures along with other Congressional Acts have been transmitted to the President to be signed into law, or they automatically become law after 30 days.


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