June 11, 2014 Palikir, Pohnpei —When Congress last extended the so called “sunset clause” for the FSM Revenue Administration Act, popularly known as the Tax Reform bill, several members said that they would not extend it again unless all of the States passed enabling legislation. Congress has extended the deadline seven times before.
Legal Counsel for the FSM Congress, Lam Dang said that Senators had often expressed that one country can’t have separate tax regimes which would be the case if the Tax Reform measure was passed without enabling legislation in each of the FSM’s States.
The originally passed Tax Reform bill contained a date by which all of the States would need to have passed their own enabling legislation. If any State had not passed its own legislation to allow for the new tax regime by the deadline date, the entire bill would be null and void.
President Mori asked Congress several times to entirely eliminate the sunset clause from the bill in order to give the States enough time to pass their own necessary legislation. Senators were not so inclined and the debate on the matter was sometimes heated. In the end they took no action before the end of the fourth regular session. The last extended deadline was May 31, 2014 which has now passed.
FSM’s Vice President Alik Alik who has chaired the Tax Reform Committee kindly returned our phone call. His initial answers to our questions were mono-syllabic. Principally we wanted to know if the Tax
Reform bill was now dead. “Yes,” he responded. After answering several other questions with the same answer he said that he would be convening the Executive Steering Committee on Tax Reform to decide what next needs to be done. He believes that another bill can be introduced to accomplish the same purposes.
“There’s a real need for it,” he said and added that many people think that the tax reform proposals are just for the purpose of raising funds for the government but while that is important, it’s more important to develop the private sector. He and many others have long argued that the provisions of the proposed tax reforms would do that.
The Chuuk and Kosrae governments have both passed their own enabling legislation but Pohnpei and Yap have not done so.
Pohnpei’s Governor Ehsa has gone on record saying that he supports the FSM’s Tax Reform bill but the legislature had not passed enabling legislation before the mos decent deadline passed.
Yap also has not passed legislation allowing for the mechanisms of the proposed tax regime. Their hesitation seems to have been derived from opposing interpretations of their constitution. The legislature has said that the constitution does not allow for assignment of taxing authority to an outside entity. A legal opinion from their executive branch opines that nothing in their constitution bars Yap from passing the legislation that would allow for the FSM proposed tax regime revamp.
On the national level, the Executive Branch has consistently said that tax reform could legally move forward without the participation of all of the States. Congress has said that it would not pass the bill without 100 percent participation of the States.
The end result is that the sun has set on the tax reform bill.