Micronesia - Politics, government, and taxation

The Federated States of Micronesia emerged as a nation from the former United Nations Trust Territory of the Pacific Islands (TTPI) administered by the United States from the end of World War II. The Federated States of Micronesia became self-governing in 1986.

Political legitimacy rests on a majority vote through elections in accordance with the constitution. On May 10, 1979, the locally drafted Constitution of the Federated States of Micronesia incorporated the 4 states of Kosrae, Yap, Ponape (later Pohnpei), and Truk (later Chuuk). The Congress includes 14 members, called Senators. The 4 states each elect 1 "Senator-at-Large" for a 4-year term. The remaining 10 Senators are elected for 2-year terms: their seats are distributed in proportion to the population of each state. Each of the 4 states has its own constitution, governor, and legislature. The federal president and vice-president are elected by the Congress from among the 4 "Senators-at-Large." The president of the Federated States of Micronesia since May 1999 has been Leo A. Falcam.

The state governments are fairly autonomous and work like state governments in the United States, with individual executive, legislative, and judicial systems. In each state, traditional leaders work closely with the local governments to maintain cultural traditions.

There are 3 branches of government: an executive branch led by a president who also serves as head of state; a unicameral (single house) legislature elected from the 4 constituent states; and a judicial system that applies criminal and civil laws and procedures closely paralleling those of the United States. Under the Compact of Free Association, the United States is responsible for defence.

The Council of the Micronesian Government Executives aims to facilitate discussion of economic developments in the region and to examine possibilities for reducing the considerable cost of shipping essential goods between the islands.

The main tax that all businesses in Micronesia pay is the Gross Receipts Tax. The tax is assessed on the gross revenues of businesses, which includes all receipts without deductions. The rate is $80 on the first $10,000 of gross revenues and 3 percent of any excess for the calendar year. Businesses with less than $2,000 gross revenue in a year are eligible for a refund of the taxes paid for that year. A Wages and Salaries Tax is assessed on an employee's income. The Social Security Tax requires the employer to pay half of the tax and the employee to pay the other half. The current rate is 4 percent of wages paid by both the employee and the employer.