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Palau’s Economy Needs Tourism Industry, Tax and Business Reforms-ADB

Based on the consultation with the private sector in Palau, the Asian Development Bank (ADB) has identified Palau’s strength resulting to its economic growth but “masks” some pressing issues particularly on its tourism industry.

The private sector assessment stated that in the past two years, Palau has enjoyed a substantial economic growth and per capital income, making the island nation one of the highest in the Pacific region.

“Yet the strong performance of the economy masks some pressing issues, particularly with respect to the tourism industry, but also in terms of policy implementation, state-owned enterprise (SOE) efficiency, access to finance, and the business law framework,” the report said.

Paul Holden, ADB’s Pacific Private Sector Development Initiative (PDSI) lead economist who presented the report at the Palau Chamber of Commerce Thursday said enforcement of laws in Palau is “also a major issue.”

He also said that although front business is rampant, vanishing them would be bad for the economy as they provide a service in Palau especially in the tourism industry.

New Hotels are under construction in the Palau capital of Koror. Photo by Ongerung Kambes Kesolei

He however said Palau’s current business law framework makes it hard to establish a business here, as a result attracting from businesses.

The assessment also said that it important that Palau’s pristine environment is not compromised as at the result of its economic growth.

It is recommended that a moratorium on new tourism related facilities and further increases of tourists arriving on packaged tours until a National Tourism Policy is in place.

The assessment also recommended a tax reform and the implementation of value-added tax and by doing away with gross receipts tax.

Palau should also tap the agriculture’s potential to reduce Palau’s dependence on food imports, which have been growing rapidly as tourism has expanded.

There should also be reforms of several of Palau’s laws governing business activity. The report suggested installing a modern electronic company registry, which can also be used for business licensing which will promote private sector development and provide positive synergies for the evolution of an improved tourism policy.

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