The goal of every commercial organization/company is to maximize profits while keeping payable taxes as low as possible.

 

Those practices however, need to be consistent with the applicable laws, and in doubt or when a new way to calculate profits is used, it’s common practice that a ruling is requested from the tax office. In this ruling, the company/taxpayer asks for prior permission to use the suggested calculation. This is at least the procedure that I'm used to.

 

For years, if not decades, "the manta man" dodged paying the correct amount of room and gross revenue taxes by artificially keeping the room revenue low.  I'm not saying this practice is illegal, for that, my knowledge of the Yap/FSM tax laws is too limited, but it shows, however, in my opinion, that the state of Yap and the government of the FSM are being disadvantaged. 

 

The calculations below show how it was done, and I have no reason to believe that this practice isn’t still in place. Keep in mind, however, that the amounts mentioned below are fictitious but realistic.

 

"The manta man" offers a 7-night stay with 5 days of Diving packages, including airport/hotel transfers, room/accommodation, breakfast, diving, and taxes.

 

Let’s say this 7 night/5 days diving package is being sold for USD 1,500. The USD 1,500 is made up of several elements. The room tax in this example is set at 10% over the room revenue and 5% over the gross revenue. The consumer (tourist/diver) doesn’t see the breakdown of the packages, but only the total package price being sold for.

 

The package breakdown is as follows:

Airport/Hotel Transfer USD 20
Daily Breakfast USD 100
Room/Accommodation USD 600
Diving USD 720
Room Tax (10% over Room Revenue) USD 60

Total Package Price USD 1,500

 

The room tax payable in this calculation would be USD 60, and Gross Revenue Tax USD 75 (5% over USD 1,500).

The above-mentioned is what would be the correct building up of the packages, resulting in a tax contribution of USD 135 per package sold.

 

"The manta man", however, found a creative way to lower the tax contribution by adding a “Fuel Surcharge” element to the packages and subtracting this “Fuel Surcharge” as a non-revenue element from the total income/revenue.

 

This results in the following build-up of packages;

Airport/Hotel Transfer USD 20
Daily Breakfast USD 120
Room/Accommodation USD 400
Fuel Surcharge USD 200
Diving USD 720
Room Tax (10% over Room Revenue) USD 40

Total Package Price USD 1,500

 

This method results in a room payable of USD 40 and Gross Revenue Tax USD 65 (5% over USD 1,500 – USD 200 = USD 1,300).

 

Due to this practice, the state of Yap misses a USD 20 (33%) room tax contribution, and the FSM Government misses USD 10 (13%) in tax income per package sold.

 

Hope you agree that this is relevant to the development of Yap and the FSM.