Excise Tax in Marshall Islands: Rules & Outlook

Understanding Excise Tax in the Marshall Islands: Does It Exist?Copy link to section

The Marshall Islands does not operate a standalone excise tax. No dedicated excise statute exists, and what functions as an excise elsewhere is delivered through specific import duties written into the customs tariff schedule and collected at the border by the National Customs Service.

The national tax system rests on three pillars: a wages-and-salaries tax, import duties, and the Gross Revenue Tax. Together these account for more than 90 percent of annual tax revenue, according to analysis in the IMF technical report.

There is no value-added tax, no goods and services tax, and no national sales tax. Only two local governments, Majuro and Kwajalein, levy and collect sales taxes of their own.

This article explains how excise-type charges actually operate here, which goods carry them, the exemptions available, and the reform program that may convert these duties into formal excises. It is written for foreign owners and their advisers weighing whether the absence of a discrete excise regime affects their plans to incorporate or import.

The Legal Basis: Why the RMI Charges Specific Import Duties Instead of a Standalone Excise TaxCopy link to section

The consumption tax framework rests on three elements: import tariffs, a business turnover tax, and local sales taxes. None of these is a dedicated excise law, and there is no separate statute imposing excise duties on production or consumption.

A true excise would apply to both domestically produced and imported versions of a dutiable good. Import duties reach only goods crossing the border, which leaves a gap where local production exists.

Domestic manufacturing of the relevant goods is limited, so the distinction has little practical effect for most products. The exception worth noting is locally produced spirits and liquor, which should fall within the tax net but escape an import-based charge.

The tariff structure is administered by the Ministry of Finance and the National Customs Service, with duties assessed by Harmonized System (HS) code. Excise duties are recognised under international trade practice and would give the system more resilience against future shifts in the domestic market.

Marshall Is.

Company Incorporation in Marshall Islands

Set up your company in Marshall Islands with Expanship handling registration end to end.

Learn more

Goods Currently Taxed Like Excises: Alcohol, Tobacco, Fuel, Soft Drinks and Motor VehiclesCopy link to section

Five categories carry the duties that function as excises elsewhere: alcohol, tobacco, motor vehicles, fuel, and soft drinks. If your business does not import any of these, no excise-equivalent charge applies to you.

The duty mechanics differ by category. Fuel, alcohol, and tobacco carry specific (per-unit) rates; motor vehicles are taxed on value; and soft drinks fall under a mixed regime combining specific and ad valorem components.

Local government taxes add a second layer in two atolls. Both Majuro and Kwajalein impose their own charges on gasoline, alcoholic beverages, and hotel rooms, so an importer may face duty at the border and a further local levy on sale.

Precise per-unit dollar amounts for fuel, beer, wine, spirits, and cigarettes are set in the customs tariff schedule, which is the authoritative source for current figures. Confirm the applicable rate against that schedule before pricing an import.

How the Charges Are Applied: Specific (Per-Unit) Rates and the Point of ChargeCopy link to section

Every excise-type charge is levied at importation. The National Customs Service is the sole collection point under the import-duty regime, so liability arises when goods clear the border, not at the moment of sale.

Specific duties on fuel, alcohol, and tobacco are fixed per unit, measured per gallon for gasoline and diesel and per cigarette for cigarettes. Motor vehicles are assessed on value using the Kelley Blue Book figure as the duty base, while soft drinks draw on both methods.

A structural feature matters for anyone modelling future costs: the specific rates are not indexed to inflation and have stayed flat in nominal terms for years. Because of that freeze, the inflation-adjusted value of these duties has fallen by more than a third over the last 20 years.

For an importer, the practical takeaway is stability. Per-unit duty costs have not climbed, though that very stability is what the reform program aims to change.

Marshall Is.

Ongoing Compliance in Marshall Islands

Keep your Marshall Islands entity compliant with filings, returns, and statutory obligations.

Learn more

The Proposed Shift from Import Duties to True Excises (and the Carbon Tax on Fuel)Copy link to section

A reform program now under way would convert the remaining specific import duties into formal excises. The plan covers the existing "sin" taxes on alcohol, tobacco, and motor vehicles, and would also replace the parallel local government taxes in those categories.

The IMF has recommended this conversion, identifying fossil fuels, tobacco, and alcohol as undertaxed relative to their negative externalities. It further advises indexing the new excises to inflation so their real value holds over time, a direct response to the erosion described above.

The reform runs in two phases. Phase one, covering personal income tax rates and thresholds, was legislated in October 2024; the more involved second stage, which introduces a VAT and profit tax alongside excise reform, is foreseen for October 2026.

Climate policy sits at the centre of the fuel discussion. The Tile Til Eo 2050 Climate Strategy, finalised in 2018, targets net-zero emissions by mid-century, yet CO2 emissions from fossil fuels rose 13 percent between 2010 and 2023.

The current duty exemption for fuel imported by the Marshalls Energy Company and KAJUR removes the price signal that carbon pricing would otherwise create. Medium-term plans referenced in the IMF reform analysis include raising rates for diesel and jet fuel, with LPG also mentioned.

Tobacco taxation is low by international comparison. As of 2018, the excise share of the retail cigarette price was assessed at 30 to 40 percent, a level that placed the country among only a handful with a lower cigarette tax score worldwide.

A Marshall Islands Consumption Tax of 10 percent on goods and services is proposed within the same package, separate from the excise conversion but part of the broader redesign.

What the Absence of a Standalone Excise Regime Means for Companies and InvestorsCopy link to section

For most foreign-owned structures, the absence of an excise regime means there is nothing extra to manage. A company that does not import alcohol, tobacco, fuel, soft drinks, or motor vehicles faces no excise-equivalent charge under current law.

Non-resident companies not conducting business within the country are exempt from all national taxes, including income, profits, dividends, royalties, and compensation. International Business Companies are likewise outside the corporate tax net, and there are no export taxes.

The exposure is narrow and specific. Only importers of the five de facto excise categories carry a customs-point duty obligation, and that obligation is settled through the standard customs entry, not a separate excise return.

Looking ahead, the picture could shift. The IMF describes timely delivery of Phase 2, scheduled for FY2027, as critical to reducing reliance on volatile non-tax income and freeing fiscal space for climate adaptation, which signals that new excise and consumption charges are a real medium-term prospect for businesses dealing in dutiable goods.

Marshall Is.

Marshall Islands Incorporation Pricing

See transparent pricing to incorporate and maintain a company in Marshall Islands.

View pricing

Exemptions and Reduced Charges Within the Excise-Type ScopeCopy link to section

A range of goods enters free of import duty. Exempt foodstuffs include milk, rice, flour, vegetables, fruit, poultry, and canned fish, alongside aviation fuel and components, fishing equipment, renewable and energy-efficient equipment, and inputs for local manufacturing.

Fuel imported by the Marshalls Energy Company or for KAJUR is also exempt. This particular relief is the one the IMF has flagged for reform, since it suppresses the price signal that would otherwise discourage fossil fuel use.

Travellers receive duty-free personal allowances at the border:

• 600 cigarettes, or 454 g of cigars or tobacco
• 2 litres of alcoholic beverages, for persons aged 21 or over

Trade with the United States carries preferential treatment. Under the Compact of Free Association, certain U.S.-origin products, including foodstuffs, machinery, and consumer goods, qualify for exemptions or reduced tariffs.

One distortion deserves attention. Because Majuro and Kwajalein levy their own tobacco taxes, the effective burden varies by location, which creates room for intra-country cross-border shopping.

Compliance Obligations for Importers and Producers of Excisable GoodsCopy link to section

Compliance here is customs-based, not excise-based. Duties are declared and paid as part of the customs entry at the point of import, and there is no separate excise registration, return, or filing cycle to maintain.

The National Customs Service, under the Ministry of Finance, administers the tariff and enforces it. Officers inspect incoming cargo, review shipping documents, assess the applicable tariff, and verify declared goods to guard against smuggling and counterfeit trade.

Penalties for non-compliance are substantial. Financial sanctions apply to violations, and repeated breaches can lead to a business being barred from operating in the country.

Administrative capacity is limited, a point worth factoring into expectations on processing and guidance. The tax administration operates with roughly seven staff in a largely manual environment, with known gaps in registration, procedures, IT systems, and compliance monitoring.

Outlook: The Future of Excise Taxation Under the RMI Tax Reform ProgramCopy link to section

The direction of travel is toward a modern consumption tax system. Phase 2 would replace the turnover tax, local sales taxes, and various import duties with a combination of VAT, profit tax, and formal excises, with implementation foreseen for October 2026, the FY2027 fiscal year.

Oversight rests with a Cabinet-established Tax Reform Modernisation Committee, drawing on studies by the Asian Development Bank and PFTAC. The government also plans to procure a new Revenue Management System to support the redesigned regime, as noted in the 2025 Article IV statement.

The transition is designed to be revenue-neutral in the medium term. New taxes are intended to substitute for old ones with near-zero net effect on the fiscal balance, while broadening the base and reducing distortions.

Headroom remains, however. IMF staff estimate tax capacity at 17 to 19 percent of GDP against an actual level near 14 to 16 percent, and they flag that gradual VAT rate increases beyond the initial 12 percent may be warranted to fund climate investment.

For a foreign-owned importer, the message is to plan for change. The excise framework that exists today as a set of frozen import duties is slated to become a formal, possibly inflation-indexed regime within the reform horizon.

ConclusionCopy link to section

For a foreign business owner, the practical weight of this topic sits almost entirely on one variable: whether the goods being imported fall within the categories the Marshall Islands already taxes like excises. If they do, per-unit charges apply at the point of entry, compliance obligations follow immediately, and available exemptions deserve careful review before the first shipment is planned rather than after.

The reforms on the table matter because they could reframe those charges structurally, not just administratively, and a shift toward true excises or a carbon tax on fuel would alter cost calculations for importers who have priced the current duty-based system into their margins. Watching the reform program is not optional housekeeping; for any business whose goods sit in the taxed categories, it is the thread most likely to require a concrete decision.

How Expanship Can Help Your Business in Marshall IslandsCopy link to section

Expanship advises foreign owners on how the import-duty regime affects goods they bring into the country and on what the planned excise and consumption tax reforms may mean for their cost base, while supporting the full set of obligations a non-resident entity carries here.

• Company incorporation, including International Business Company formation
• Registered agent and registered office services
• Tax registration and filing where obligations arise
• Ongoing compliance management and statutory upkeep
• Accounting and bookkeeping support
• Banking introductions for newly formed entities

To discuss your situation and next steps, contact Expanship Marshall Islands.

Frequently Asked QuestionsCopy link to section