by pauline bre -...
TRANSCRIPT
Pauline Bre
By
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Date: 29
rd March 2015
Ms Kessy Sawang
Head of Secretariat
Tax Review Secretariat
C/- Department of Treasury
PO Box 542, Waigani, NCD
By email: [email protected]
Dear Ms Sawang,
Response to the Tax Review Committee on Issues Paper 5- Tax Incentives
Thank you for allowing me the opportunity in extending time to comment on the above issues paper.
At the outset, I clarify that the views expressed here are expressed in my personal capacity
independently of any association with the IRC and are expressed my own private capacity.
Issues Paper 5 is well written and the Tax Review team is commended for the excellent effort in
finalising the paper on this important aspect of the taxation law and practise in Papua New Guinea.
There are a few observations that I would like to offer for consideration by the Committee and these
are set out in the paper attached as well as comments pasted to the Issues Paper as attached.
Should you have any queries please do not hesitate to contact me on email [email protected]
Yours Sincerely,
Pauline Bre
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CONTENTS
Questions Posed by Tax Review................................................................................................................................................ 4
Question 1.1 – are stakeholders aware of any other tax incentives not captured in the table?................................................... 4
Public Authorities: ................................................................................................................................................................. 4
Proposal: .................................................................................................................................................................................. 4
Double Tax Treaties and its application on profits sourced in PNG: ..................................................................................... 5
Proposal: .................................................................................................................................................................................. 5
Other ‘Aid’ entities. ............................................................................................................................................................... 6
Fiscal Stability provisions For resource companies. .............................................................................................................. 6
Taxpayer Specific Tax incentives- Ad Hoc amendments to the Tax Act to cater for certain taxpayers. ............................... 6
Proposal: .................................................................................................................................................................................. 7
Project Agreements usurping the Democratic principle of separation of powers. ................................................................. 7
Proposal ................................................................................................................................................................................... 7
Question 1.3 - are relevant stakeholders able to indicate how individual incentives helped to achieve the stated policy goal? 7
Proposal ................................................................................................................................................................................... 8
The Advantages and Disadvantages of Tax Incentives .............................................................................................................. 8
Question 2-3 – do stakeholders have any other views about the merits of particular types of tax incentives? .......................... 9
Charities ................................................................................................................................................................................. 9
proposal ................................................................................................................................................................................. 10
Application of GST on GST exempted and zero-rated imported goods generally .............................................................. 10
Proposal: ................................................................................................................................................................................ 11
Resource company GST concessions .................................................................................................................................. 12
Exempted Imports ................................................................................................................................................................... 12
Zero-rating supplies to resource companies ............................................................................................................................ 12
Reverse charge provision under s15 GST Act for supplies of fine metal: .............................................................................. 13
Proposal ................................................................................................................................................................................. 13
Discretionary power in NEC (Head of State) to grant GST, CUSTOMS AND EXCISE exemptions: ............................... 14
Proposal ................................................................................................................................................................................. 14
GST Input tax on overseas SERVICES AND impact of eCommerce ................................................................................. 15
Aid ....................................................................................................................................................................................... 15
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Tax Incentives in PNG – Possible Directions for Reform ....................................................................................................... 20
Other issues: ............................................................................................................................................................................ 23
Response to the Key findings by the Tax Review Committee on tax incentives in PNG ........................................................ 25
Additional Views: .................................................................................................................................................................... 26
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QUESTIONS POSED BY TAX REVIEW
This paper is intended to provide a response to the questions as posed by the Tax Review Committee
in its Issues paper no 5 on Tax Incentives and expand on the various incentives either already
discussed, offer my personal views and pose some proposals for consideration by the Tax Review
team.
Consultation Questions
The various consultative questions are reproduced and responses indicated accordingly. As noted, the
questions are intended to act as prompts and stakeholders are free to raise any other related views or
issues hence, the responses as set out herein.
QUESTION 1.1 – ARE STAKEHOLDERS AWARE OF ANY OTHER TAX INCENTIVES NOT
CAPTURED IN THE TABLE?
Response: The table exhaustively lists the incentives available currently under the taxation laws.
However, there are certain other tax incentives worth mentioning and these are:
PUBLIC AUTHORITIES:
A trend has developed over the last 15 years where tax incentives have been contained in non-tax
laws particularly concerning public authorities.
Public authorities are exempt from income and dividend taxes and require inclusion under
Regulation 5B as required by section 24 of the Income Tax Act.
Amendments to Regulation 5B of the Income Tax Regulation to include the public authority in the
list of public authorities’ eligible for income tax exemption, are often not made creating added
administrative complexity for the IRC.
Examples include those in the enabling Acts of public authorities of the IPBC, MRA, National
Roads Council Act and others which provide outright exemption from income tax(IPBC, NRCA) or
recognition as a public authority under s24 Income Tax Act (MRA etc,.)
These should in my view be contained centrally in the Income Tax Act Reg 5B for ease of
administration. It creates added administrative complexity as the treatment of the public authority
under s24 of the Income Tax requires prescription by regulation and tax officers are somehow
expected to know each of the enabling laws of these public authorities to verify the tax status.
PROPOSAL:
Amendments should be made to s24of the Income Tax Act (ITA) to clarify that it prevails over other
enabling laws and public authorities must be prescribed in the Income Tax Regulations as required
under s24. The commercial arm of public authorities or state commercial entities should not be
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treated any different to any other taxable entity to ensure it competes fairly in the market and should
not enjoy any tax incentive.
Further, the Legislative Counsel should ensure amendments to Regulation 5B of the Income Tax Act
are also made before approving legislative drafts before they are been finalised for Parliament.
DOUBLE TAX TREATIES AND ITS APPLICATION ON PROFITS SOURCED IN PNG:
Reduced income tax rates arising from Double Tax Treaties should also be considered as incentives
as they provide an avenue to encourage cross-border trade and investment. Tax reductions in most
PNG DTTAs are for Interest Withholding Tax, Royalty Withholding Tax and Dividend Withholding
Tax usually at 10%.
The impact of double tax treaties for MNEs or offshore players has not been fully discussed in
the Issues Paper. These are complex issues and requires careful consideration however, the existence
of tax credit provisions in PNG DTAs mean that tax payers from treaty partner countries obtain a
credit for the taxes paid in PNG by their home country so double income on the one income from
investments sourced in treaty partner country is eliminated.
Where PNG income taxes are forgone as result of incentives, the home country of the recipient can
treat this as taxes paid and so allow a credit but only for those exemptions/concessions to income that
both Governments through their respective Treasury Ministry agrees to do so by letters of exchange
and in the case of the DTTA with Australia to also include the years of income it applies to. Similar
provision is present in the DTTA with Australia, Singapore, UK etc. In the DTTA with Malaysia the
specific incentive provisions are specified in the DTTA or where indicated through letters of
exchange between the competent authorities.
In the absence of such letters of exchange, the home country may, subject to their laws, have the
taxing right on the income that is exempted from PNG tax through incentives.
The DTTA with China does not provide this requirement and allows for the credit to be given to the
tax foregone to the extent of the Chinese tax to be paid as if it were fully taxable.
Most of PNGs treaties use the credit method for elimination of double taxation and in some have
incorporated an anti-abuse clause to limit the amount of relief (PNG DTTAs with Singapore,
Malaysia, UK) only to the amount foregone and still allow them the right to tax the balance.
PNG companies who pay taxes in those treaty partner countries are then allowed a credit in PNG.
There is no requirement for letters of exchange where any PNG companies receive any tax incentive
on any of their income sourced in Australia, Singapore, etc,. That is perhaps because at the time of
negotiation of the DTTAs it was anticipated that no such incentives will be issued to PNG companies
who invest in those treaty partners. This is perhaps still the case currently.
PROPOSAL:
The awarding of incentives above and beyond the DTTA for companies from treaty partners should
be discouraged as the incentives are already adequately covered under the DTTA which is a bilateral
agreement.
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OTHER ‘AID’ ENTITIES.
The Enhanced Co-operation Between PNG and Australia Act 2004 which is the enabling law for the
‘Strongim Gavmen Program’ with the Australian Government provides concessions similar to those
granted under ‘aid status’.
This extends even to salary & wages (SWT) exemption for ‘individuals’ and their purchases for the
purpose of the program (Sch Art 15(2)] from GST.
However, it is not clear if its application to non-program purchases especially those of a private
nature are exempted in practise. This should be clarified.
Regardless, Art 15 of PNG Aust DTA already covers treatment of SWT on government employees
of the other country, it is only the GST status that should be clarified.
FISCAL STABILITY PROVISIONS FOR RESOURCE COMPANIES.
Further to the issues discussed under ‘Mining & Petroleum sector’ in the Issues Paper, consider the
impact of the Resources Contracts (Fiscal Stabilisation ) Act which locks in certain tax rates for
Mining and Petroleum (M&P) sector for up to 20 years or for Gas operations’ up to a certain
‘foundation’ volume of gas produced as agreed in a resources contract. This is also an incentive.
TAXPAYER SPECIFIC TAX INCENTIVES- AD HOC AMENDMENTS TO THE TAX ACT TO CATER
FOR CERTAIN TAXPAYERS.
There have been on occasion’s ad hoc law changes to the tax legislation to cater for specific
taxpayers. This should be discouraged through an effective ‘ways and means’ Parliamentary
Committee.
Examples of such ad hoc law changes include:
1. Legislative amendments enacted to the Income Tax Act in the 2010 to provide for the
exemption of an otherwise taxable receipts to effect the exemption of otherwise table receipts
when Inmet, a shareholder in Ok Tedi sold its shares and exited, stamp duties on the
transaction was also exempted by extending the State official exemption status under the now
former s6 of the Stamp Duties Act. (Re: National Gazette 60 of 2010 issued under s6 and
Income Tax Amendment No 5 of 2010 and Reg 5N ITA)1. Such ad hoc law changes should
be discouraged and the repeal of s6 SDA in the 2011 budget is a step in the right direction.
2. Tax Credit Scheme- impact of Income Tax Amendment no 5 of 2013
Certified on 17 June 2013, the Income Tax Act was amended in s219C to include new
subsections authorising ‘eligible taxpayers’ (mostly resource companies) to claim a tax credit
on expenses incurred to construct any national infrastructure project as approved by the NEC
and where the expenses went beyond the allowable limit to granting the taxpayer to nominate
any future income years to 20 years that it can use the excess to claim the expenses as credit
against its assessable income. This amendment was later repealed in the 2015 budget
however some taxpayers may have already benefited from the 2013 amendment.
1 For examples of other exemptions issued under the previously repealed s6SDA re: NG 235 of 2013, NG 128 of 2002.
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PROPOSAL:
The Parliamentary process of the passage of money bills or tax laws should be strengthened to
provide for an effective ‘ways and means’ bipartisan committee consisting of the Opposition and
Government to debate and endorse money bills before it is introduced into Parliament.
PROJECT AGREEMENTS USURPING THE DEMOCRATIC PRINCIPLE OF SEPARATION OF
POWERS.
This relates to the principle of separation of powers between the Executive and the Legislature (s99
Const). When the Executive contracts to bind the Legislature to agree to certain law changes it is in
the author’s view usurping the Legislature’s power to enact laws. The peoples law-making powers
are vested in the Parliament (Legislature) by the Constitution (ss 100 and109 Const) and the
Executive arm should not tread on that law-making power by using its contractual power and bind
the State without proper debate and discussion in Parliament.
This should apply especially to fiscal incentives offered under project agreements and especially so
because of the mandatory Parliamentary control provision of s209Const. Often time’s project
agreements are already executed with such undertakings by the Executive arm of Government before
it is fully debated in Parliament. Certain taxpayer incentives have arisen because of this usurpation
and this should be discouraged. The Constitution emphasises this principle of separation of power
and any such usurpation should arise from a specific mandate to the Executive arm in the
Constitution. This view presents legal arguments but should be highlighted.
PROPOSAL
The issue should be flagged to the State Solicitor to ensure that the Executive arm of Government
does not agree to any legislative changes unilaterally without the provisions been debated and
discussed in Parliament in all in all project agreements.
Alternatively, that clauses in new project agreements reflecting such agreements be made subject to
final approval of Parliament in all project agreements.
Question 1.2 – do stakeholders agree with the stated purpose of each incentive, as provided for
by the Review?
Response: Yes, with minor editions to the table in the Issues Papaer.
QUESTION 1.3 - ARE RELEVANT STAKEHOLDERS ABLE TO INDICATE HOW INDIVIDUAL
INCENTIVES HELPED TO ACHIEVE THE STATED POLICY GOAL?
Response: No, but suppose a sample of the beneficiaries who benefited from these incentives can be approached
to indicate the extent of the benefit. This can be done through an additional requirement in the
taxation forms/returns/Entries filed which the IRC/Customs can generate the data or through some
monitoring measure conducted by a joint agency effort amongst the Department of Commerce and
Industry and Investment Promotion Authority including DFAT for aid projects with the IRC and
Customs.
Regardless, in my view, most tax incentives create distortionary effects to the small tax base of PNG
and an uneven market competition and often times do not apply to local firms.
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For instance, it is supposed that most resource companies harvest as much of the resource as they can
during the during tax break years to offset costs and minimise taxes and because they have a
generous carry forward option can carry forward losses indefinitely2 during the life of the resource
project and plan their taxes in such a way that they spread out the losses and costs to cover that
period and pay only enough taxes then what they should normally have if they did not have these
incentives.
M&P companies can carry forward losses indefinitely and non M&P taxpayers can carry forward
losses for 20 years [s101(3)ITA]. This provision should be reviewed, stopped, and a term of 12
months be introduced to reflect the annual income nature of income taxes.
Another example, relates to tourism incentives introduced in 2007 which should translate to
increased tourist activities in PNG however; it is agreed that other non-tax factors such as law and
order, social and infrastructure challenges may have played a more pronounced role on whether tax
incentives introduced to support this industry has achieved its intended purposes.
Again, because of the social issues facing PNG and the reluctance of foreign tourists to visit PNG as
a holiday destination, the incentives should instead be offered to PNG citizens as they know their
country and are more risk averse and some PNGns are increasingly going abroad or exploring travel
options in PNG for their holidays but because of the costs (travel and accommodation-which is
offered for overseas tourist in zero-rating such purchases from abroad3) have not so utilised the local
facilities. This should be offered as an alternate to recreational leave to the home province for
government employees and other citizens as a way to boost local tourism.
PROPOSAL
1. Reduce losses carried forward to one year of income.
2. Extend tourist incentives to Papua New Guineans and residents living and working in PNG for
more than 12 months as a way to promote local tourism.
THE ADVANTAGES AND DISADVANTAGES OF TAX INCENTIVES
Question 2-1 – what other advantages do tax incentives have, particularly in the PNG context?
Response:
It is difficult to quantify advantages in the absence of regular monitoring and cost benefit studies
undertaken in terms of the outcomes to Government in tax revenue, social and economic terms. Tax
incentives have proven difficult to administer and add to the complexity of the tax system. They
create an unfair playing field, do not usually serve its public policy purpose, creates distortionary
effects and provides ways for clever crafted tax planning and tax avoidance.
Administratively, it detracts the limited resources of the revenue administrations limited resources by
concentrating its efforts in work that produce minimal benefits in revenue to the State. It makes no
economic sense to do that.
2 Section 101(3) Income Tax Act 1959
3 Section 21(1) (g) and (h) GST Act 2003.
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There should be no discretion anywhere in legislation and all players should comply with what is in
the regulatory framework in the taxation and customs laws.
Eaton and Zolt4 opine that “sometimes tax incentives are hard to quantify. Other times the benefit
accrues to persons other than the firm recognised for the tax benefit.”
The INA study of 2014 mentioned in the Issues Paper clearly highlights the conflicting values
placed on tax incentives by Government and businesses and perhaps demonstrates that the intended
public purposes placed by Government in offering tax incentives is not effective as businesses view
it differently.
The wide array of tax incentives indicate in my view, that it is easier to introduce tax incentives then
for Government to tackle the difficult social and economic challenges of law and order,
infrastructure challenges and bureaucratic complexities.
Question 2-2 – what other disadvantages do tax incentives have, particularly in the PNG context?
Response:
As above.
QUESTION 2-3 – DO STAKEHOLDERS HAVE ANY OTHER VIEWS ABOUT THE MERITS OF
PARTICULAR TYPES OF TAX INCENTIVES?
Response: Yes, these are outlined below:
CHARITIES
Charities enjoy a wide suite of tax incentives.
Charities are eligible for a 5 year income tax exemption, GST zero-rating can apply for import duty
exemption/reduction to Cabinet under s9 of the Customs Tariff Act.
Charities are approved by the Commissioner General under Section 25A of the Income Tax Act 1959.
These are published in the National Gazette5.
Charities also enjoy GST zero rating status on their supplies under s21 of the GST Act.
Charities are intended to assist Government to undertake activities that provide:
1. relief to the poor,
2. education for the poor,
3. medical relief
4. any other benevolent activity that is not for profit.
4 Eaton and Zolt “Tax Incentive” World Bank Institute 2001, p10
5 For examples refer to NG 8 of 2013, NG 240 of 2011, NG 47 of 2010, NG 23 of 2008 etc,.
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Charities are required to lodge annual income tax returns and 80% of their income is exempt whilst
20% is subjected to tax.
The approval of charities should be transferred out of the Commissioner General’s mandate to the
Community Services/Welfare department.
The Commissioner General or her officers are not best placed to decide if a charity meets any of
these social welfare objectives. Their task is to ensure that charities lodge their annual returns and
apply the 80/20 rule for income taxes and zero-rating treatment for charitable activities. There should
be a certification process whereby the Community Development/Welfare Departmental head is
authorised to certify the charitable activities/transactions before it is undertaken by the charity and
that should support the claim for GST zero-rating.
The current regime creates unnecessary work on the IRC and detracts its scarce resources away from
activities that generate revenue returns to Government.
Charities are also a conduit for wealthy individuals or companies to transfer excess funds and its
overall regulation should be strengthened by appropriate cross agency dialogue between IRC and the
social and community department by relevant law changes.
Criteria 4 in s25A “or any other object or general public utility’ is such a wide term that it can apply
to any activity such as investment activities by trusts created to benefit landowners6 or some other
group of people that is intended for profit but due to its weak regulation can be captured as a
charitable activity under s25A. This terms should be repealed.
Landowner Resources Trusts are already covered under Part III Dvsn 6B (Sections 137 – 142) ITA
but only applies to income tax incentives and not GST incentives as is the case for charities.
PROPOSAL
To summarise, it is proposed that the recognition of charities be done by another Government
department especially the Department of community and welfare as they should be better qualified to
consider whether an applicant is a genuine charity or not and the IRC should simply administer the
tax law as it applies to charities. Further the 4th
criteria of ‘other object or general public utility’
should be repealed as its application is so wide that it can apply to other entities that are not charities
per se.
APPLICATION OF GST ON GST EXEMPTED AND ZERO-RATED IMPORTED GOODS GENERALLY
Section 6 of the GST Act 2003 makes it mandatory for all GST to be applied on all imported goods
except goods which are exempt under s25GST Act or zero-rated under s19 or 21 GST Act.
6 For example see NG 47 of 2010 awarding chartable status to the OK Tedi landowner trusts
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In my view the law is clear, GST is to be charged and collected on all imports except on those goods
that are treated as exempt or zero-rated under the GST Act.
Views on GST on the supply of services and ecommerce is covered further on in this paper.
My view is that the practise of administering these provisions creates added complexity to the tax
administration and should be reviewed and simplified for each category of recipients. Having too
many otherwise taxable supplies zero-rated/exempted is impracticable and places tremendous strain
on the already capacity strapped revenue agencies of IRC and Customs.
Full audits should be conducted to ascertain the merits or otherwise of zero-rated supplies or
transaction where there are substantial credits involved. However, this requires a lot of effort as well
as some understanding of the taxpayer’s business by the tax officers.
GST is a transaction base tax and its intent is to pass along the GST at each stage of the supply chain
until it finally ends with the end user consumer who cannot pass it any further and so bears the
burden of the tax. These is usually the ordinary Papua New Guineans (and any unregistered GST
business operating below the registration thresholds that chose not to register for GST).
Therefore, in the author’s view, there is no point in granting certain entities zero-rating or exempt
status as the nature of the tax allows the business to pass along the GST at each stage of the supply
chain anyway.
What is perhaps required is to introduce a GST deferral system which is applicable to certain
taxpayers who meet mandatory requirements such as good compliance history etc; that is clarified in
the law, rather than a convoluted system of ‘cash-in cash out’ which is not an effective use of scarce
resources in the revenue agencies.
Exemptions are contained in the GST Act 2003 at:
A. Section 7
B. Section 25
Zero-rated at:
A. Section 19
B. Section 21
PROPOSAL:
To simplify the process, it is proposed that only certain exemptions should be allowed to entities
because of international conventions such as to Diplomatic (Consular Privileges & Immunities) and
other international aid organisations or other entities for social reasons such as to churches,
educational institutes, charities and not for profit operations who may operate below the GST
registration threshold.
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Further concessions to resource companies should also be reviewed to reflect specific policy intent
and clarify its administration. If the policy intent is to incentivise the resource industry so as to
minimise operating costs in the extraction of PNG’s natural resources given PNG’s development
challenges then that needs to be clarified and the period of the incentive should also be clarified and
not to apply indefinitely. For example during exploration, initial construction phase and perhaps first
three years of production.
It is also worth considering the impact of a GST deferral scheme and its application especially to
resource companies who may be the main users of such a scheme if introduced and the continuation
of GST exemption and zero-rating status to for instance, resource companies. The GST deferral
scheme should assist mitigate the administrative burden on the IRC to process large input tax credits
and assist it to concentrate on more revenue maximising efforts.
RESOURCE COMPANY GST CONCESSIONS
It is my view that the GST taxation policy intent on GST concessions should be reviewed and
clarified as the GST Act treats transactions by resource companies in several ways:
EXEMPTED IMPORTS
Imports of goods (other than cars) to be used solely in resource operations by the resource
companies are exempted from import GST under s7 GST Act.
Resource companies are defined in the GST Act to mean those entities that have registered
interests or tenement holders.
In my view, exemption pursuant to s7GST Act, is to be applied where a resource company
itself imports goods for its operations. If a contractor imports goods for the resource company
it cannot use s7GST Act to exempt the payment of import GST on the goods. However, the
contractor can utilise s21GST to zero-rate those imports to the resource company.
For instance, Contactor X imports heavy machinery for Resource Company Petroleum T.
Contract X is not entitled to rely on s7 to obtain exemption from GST as it is only applicable
to Petroleum T. However, Contractor T can use the zero-rating provisions of sections of 15
and 21 to claim input tax credits.
ZERO-RATING SUPPLIES TO RESOURCE COMPANIES
Supplies that are made to resource companies (other than cars) for the purpose of carrying
out their resource operations are zero-rated under s21(1)(d) GST Act.
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This allows contractors of resource companies to claim zero-rating on the resource related
supplies that it has made to the resource company.
For instance in the above example, Contractor X can use s21(1)(d) GST Act to zero-rate the
input tax that it has paid on the import of the goods to Petroleum T.
There may be instances were contractors over-import to use materials in other non-resource
operations and this raises the question on the audit capacity of the revenue agencies.
Whether audits have been undertaken to ascertain if imports are used solely in resource
operations draws on the administrative capacity of both IRC and Customs and may prove
difficult due to their limited staff capacity though should such an audit be undertaken it
should be a joint audit with other State entities such as MRA and DPE and others to draw on
their technical strengths to address this issue as well as weigh the costs to Government.
REVERSE CHARGE PROVISION UNDER S15 GST ACT FOR SUPPLIES OF FINE METAL:
This is a ‘catch all’ provision in the GST Act that treats all supplies made at all points of the
process by a resource company to produce supplies exempted under s25GST. Section 25GST
exempts the supplies of fine metal7.
Section 15 effectively allows input tax credit to all contractors who have made supplies to the
resource company that produces the fine metal as if those supplies were made by the resource
company itself.
Section 25 GST Act can also be utilised by dealers of fine metal to exempt supplies of fine
metals by it.
PROPOSAL
Section 15 GST Act, in the author’s view creates unnecessary complexity in administering
the GST Act and should be reviewed to decide the tax policy intent of this provision
considering that resource companies already enjoy exemption under s7(f) GST Act on
imports by it, zero-rating status to its contractors under s21(1)(d) GST Act, exemption on the
supply of fine metals under s25(3) GST Act, and in some instances general exemption or
zero-rating under s25(8), and (9) GST Act.
7 Fine metal is defined in s2(1) GST to mean gold, silver and platinum with a fineness of 99% and above.
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DISCRETIONARY POWER IN NEC (HEAD OF STATE) TO GRANT GST, CUSTOMS AND EXCISE
EXEMPTIONS:
Section 25(8) and (9) of the GST Act 2003 , sections 9 and 3 of the Customs Tariff Act and Excise
Tariff Act, grants wide discretionary powers to the NEC (Head of State) to either exempt or grant a
reduced rate of GST to certain classes of goods and services to be utilised with certain conditions.
Usually, access to these general discretionary powers are often highly sought by other non-mining &
petroleum projects and often involves a lot of lobbying and creates unnecessary administrative
distraction to government agencies charged with collection of revenue.
These concessions are published in National Gazettes8 arise from cabinet decisions. Frequently, the
reduced rate has often being zero-rating status with very few cases of exemptions generally because
the project developer wants to be able to claim the benefit of the GST input tax credit.
The handling of such concessions should be co-ordinated by an oversight departmental Committee
which is a subset of the Central Agencies Co-ordinating Committee with Commerce & Industry,
IRC, Customs and IPA presence.
Regardless, if we apply the true intent of the GST as a transaction based tax it is the author’s view
that there is no need for these two provisions (discretionary power) as the businesses should be able
to pass on these costs to the final consumer. This greatly simplifies the administration of taxes and
assists key revenue agencies to concentrate of revenue maximising functions rather than detracting
from it.
Further, the discretionary power to reduce customs and excise rates vested in cabinet especially for
import duties is to only apply to non-commercial projects. However, in practise such exemptions are
applied to any project. This demonstrates gross abuse and creates unnecessary lobbying from non-
resources commercial projects and should either be repealed or clarified in law that any decision
which is for a commercial project does not apply for ease of administration.
PROPOSAL
It is proposed to repeal Section 25(8) and Section 25(9) of the GST Act., and repeal or amend
Section 9 and 3 of the Customs Tariff and Excise Tariff Acts to tighten its application to purely non-
commercial imports.
8 For examples of National Gazettes issued under these provisions see NG 10 of 201, NG 280 of 2011, NG 432 of 2012
etc,.
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GST INPUT TAX ON OVERSEAS SERVICES AND IMPACT OF ECOMMERCE
Services paid from overseas based suppliers are treated as if they were provided in PNG under s14
GST Act9 and input tax credits can be claimed for them by the PNG business who paid for the
services.
Supplies between related party or a PNG branch operation with its principal offshore is treated as if it
is supplied in PNG and are to be treated as if they were supplied at arm’s length [ s14(4),(5) GST].
With the increasing use of internet in PNG, this area of the law should be reviewed and the
enforcement and audit capacities in IRC should be adequately resourced to deal with instances of
transfer pricing issues.
Some collaboration with Telkom/PANGTEL on the regulation of Internet Service Providers who
regulate ISPs in PNG and the commercial banks should be explored to increase regulation and clarify
the State’s position in the treatment of ecommerce.
AID
Taxation concessions to aid organisations, designated aid bodies/persons and other forms of tax
incentives available to aid organisations as contained in the PNG DFAT administered laws are out-
dated and requires a review to reflect the current policy intent of Government and method of aid to
PNG.
The relevant DFAT administered laws are:
Law Application Comments
1 Diplomatic and
Consular
Privileges and
Immunities Act
1975(ch 83)
Diplomats and foreign
employed consular staff Income Tax-
Sec 4(4) exempts income tax to be paid by
diplomats and foreign consular staff consistent
with Vienna Convention on Diplomatic Relations.
Customs & Excise-
Sections 5,6, 11 & 11 relates to customs and
excise exemptions and conditions for sole use of
mission or to be disposed as approved by DFAT
Minister if within two years after import and if
so the position to payment of duty is to be
contained in that ministerial determination.
GST-
There is no reference to GST. The reason may
be that there was no such tax when the law was
first enacted in 1975.
However this aspect seem to be addressed by
s7(d) & (e ) GST Act 2003.
9 Reverse charge on services received from abroad
16
Nevertheless, there is reference to ‘related
charges’ on import and it is arguable this can be
extended to GST. Some clarification of the law
is required.
2 Aid Status
(Privileges and
Immunities)
Act 1977(ch 345)
Designated aid status to
organizations and
personnel attached or
engaged to it,
This law authorises the Head of State to grant
designated aid status to organisations and the
Minister to extend aid status to persons engaged
or attached to such designated organisations.
Tax Incentives granted are exemptions from:
- SWT
- Customs
- There are certain conditions regarding
vehicle imports and its disposal within 6
months
- No reference to GST
Comment:
Income tax treatment already provided per
‘other’ in the next table below but requires
prescription.
Collaboration between DFAT and IRC in this
area should be improved and there may be a
need for legislative update to reflect GST
treatment or is the treatment under s21(1)(c )
sufficient on zero-rating of supplies to foreign
aid providers prescribed under GST
Regulations? Law change should make this
clearer.
3 Loans and
Assistance
(International
Agencies)
Act 1971 (ch 132)
provides for the raising
of loans and the
obtaining of technical
and financial assistance
by the State from
certain international
organizations and
agencies and for related
purposes
The loan or technical assistance agreement with
GoPNG must provide for the application of
domestic taxes; where it is exempted in the
Technical assistance agreement/aid agreement, it
is so exempted. ( s8)
The DFAT laws still reflect a position of ‘untied’ aid whilst ‘aid’ has changed its nature to that of
‘tied’ aid since the late 1990s.
The laws administered by PNG DFAT that ‘override’ the provisions of the taxation (GST, Customs)
laws apply in the following:
Type of entity Tax Incentive Condition Current
Legislative
Reference
Comments
Diplomats &
official
consular staff
SWT exemption The SWT
exemption does not
apply to PNGns
Section 19,
19AITA
This is OK.
17
Note:
Also extends
to others such
as UN, World
Bank;etc, staff
employed by
foreign missions
only to the foreign
Government’s
consular staff.
Exempt from all
forms of customs
excise & related
charges.
Imports for official
use not to sale in
PNG for 2 years.
Diplomatic
Privileges &
Immunities
Should be reviewed and
must be in line with
Vienna Convention on
Diplomatic Relations
and Sections 7(d) & ( e)
GST Act 20013.
Imports for
personal use within
6 months when
taking up post
If disposed of either
through sale or
otherwise eg, donation,
within 6 months of the
purchase full duties
should be applied.
Restricted on type
of goods to be
imported…
Foreign
embassy/diplo
matic mission
(Import GST
exemption) Exempt
from GST on all
imports by the
Diplomatic mission
for the official use
of the mission
Imports must be for
the official use of
the embassy or
foreign mission
Section 7(d)
GST Act
GST Act should be
consistent with what is
in the Diplomatic ( Ps
& Is) Act which is
based on the Vienna
Convention on
Diplomatic Relations
Diplomat (Import GST
exemption)
Exemption from
GST on imports of
personnel effects
Section 7(e )
GST Act
Designated
Aid Status
-aid
organisations
Exemption from
paying import duty
on vehicles and
plant and
equipment
imported for the
purpose of
performing
functions under an
aid agreement
entered into with
the State.
vehicles and plant
and equipment
imported for the
purpose of
performing
functions under an
aid agreement entered into with
the State.
Sec6, 7/8 Aid
Status
(Privileges &
Immunities)
Act
Application to
‘individuals’ under
these aid programmes
need to be reviewed and
the tax treatment should
arise from the
foundational bilateral
agreement with eg
AUSAID,NZ Aid or
JICA etc,
Foreign Aid Where the loan or Terms of Sec 8 & 6 Extent of application of
18
Donors (such
as foreign
Government
aid eg
AUSAID,
JICA, NZAID,
EU)
and
International
Loan funded
Projects ( IFC,
World Bank)
assistance agt btw
the GoPNG &
foreign govt itself
exempts something
or someone from
tax and or customs
duties that
exemption will
automatically
apply.
foundational
bilateral agreement
with GoPNG.
Eg, for EU projects
Cotonou
Agreement usually
provides for the
domestic tax
regime to the aid.
Loans & F
Assntc Act
‘aid status’ to
contractors or sub-
contractors must be
clearly covered in the
bilateral agreement with
the foreign aid donor or
spelt out in this law.
Others
Prescribed
personnel
-foreign
government
employee
Exemption from
SWT ( and
exemption from
income tax on
other foreign
sourced income)
Official
remuneration paid
for by a foreign
Government to
person while in
PNG
-foreign
government a
donor prescribed as
such in Income Tax
Regulations
-that income is
taxable in home
country.
Secs 19A,
19C, 39, ITA
Peace Corps Exemption from
SWT ( and
exemption from
income tax on
other foreign
sourced income)
Official
remuneration and
any other income
derived from
sources outside
PNG
Sec19B ITA Is Peace Corps still
operating in PNG?
Professional
( individual or
corporate)
under
Technical Co-
operation
Agreement
Exemption from
SWT and income
tax
Engagement per
terms of the
technical assistance
paid from foreign
source which does
not require
repayment of those
funds in PNG
Sec 22 ITA Only Technical Co-
operation Agreement
prescribed is that with
GoPNG and Gov of
Germany in 1980 per
Reg 5E. There are no
other agreement
prescribed in Reg 5E.
Persons
engaged under
International
organisations
of multilateral
treaties/agree
Exemption from
SWT and income
tax
Official
remuneration
Sec 39 ITA
19
ments that
PNG is a party
to as well as
other nations.
ECP/SGP ( Strongim
Gavman
program)
persons
Australian
Government
technical
support
Exemption from
SWT and income
tax and GST on
work related
purchases
Official
remuneration and
GST exemption on
work related
purchases.
Sec 4, Sch
Art 14 (4)
and (5), Art 2
Should this have been
better addressed in
existing provisions?
Creates added
complexity in
administering laws
when incentives
contained in non-tax
laws.
Note that the incentive available under the GST Act, is exemption on import (s7(d) and (e) and zero
rating of GST for supplies to foreign aid providers which are prescribed in the GST Regulations
[s21(1)(c )].
Further, supplies made to a trustee of a trust created by a foreign aid provider that is prescribed in the
GST Regulations where the supply is funded by that foreign aid provider are zero-rated.[ re:
s21(1)(c ) (ii) GST Act 2003 ].
It is the author’s view that the taxation treatment of foreign government/international organisational
sourced aid funds should reflect the PNG Government policy on taxation treatment that is consistent
with international norms and conventions. There appears to be no such policy in place so the taxation
treatment of these matters seem to have developed haphazardly. This area is flagged for review.
The fiscal terms of the EU’s Cotonou Agreement should be adopted for all aid. It is simple and easy
to administer and provides the State with flexibility in negotiating terms on whether tax cuts should
be included in the agreement or not. The EU’s Cotonou Agreement leaves the issue of taxes to a
countries domestic regime and that in the author’s view is the way to go as it allows for the levy of
taxes where so allowed.
Further, there should be clear provisions to indicate that the tax incentive do not pass to sub-
contractors only the principal contractor. Extensions to designated aid status to ‘persons’ who are
not diplomats or foreign consular staff( for the foreign government) under the Diplomatic and
Consular Privileges and Immunities Act should be discouraged.
The treatment of diplomatic and consular privileges is clear however, the administration and
application of the designated aid status is chaotically handled and results in complexity and diversion
of limited skilled resources away from the main revenue raising function of the revenue agencies to
that of less revenue to Government and is not a wise use of the revenue agencies limited skilled staff
and resources.
20
It is the author’s view that the aid status of a foreign government or international agency should not
pass to the contractors of the project. The author proposes the method of provision for national taxes
should be clearly spelt out in the foundational agreement between the PNG Government and the
foreign Government or International Organisation. It is proposed that the PNG Government should in
its negotiations with the foreign aid partner aim to as much as possible preserve the principle that
domestic taxes will apply and should negotiations reach a deadlock it should only go as far as
extending tax concessions to the principal contractor and not passed onto sub-contractors.
A contractor of infrastructure projects funded by aid monies has won the contract through
competitive bidding processes of the aid organisation and so the funds it receives are income in its
hands.
GST being a transaction based tax, if the supplies are aid supplies per se supplied to or by the aid
body they are clearly exempt/zero-rating.
Where supplies are procured by the contractor using aid monies to build infrastructure, there is an
element of risk in terms of oversupply and due to difficulties in monitoring it a limit should be
allowed as zero-rated and the balance being taxable eg, set at 50/50 .
Still, the contractor can always pass on the GST through the supply chain and claim input tax credits
without the need to piggyback off the aid status.
It has often being argued that the aid organisation cannot build a bridge for instance therefore
its taxation concession should pass to the principal contractor. This is a major policy statement and
must be appropriately supported by the Government’s decision and taxation law framework as well
as its foreign and international relations.
Further, if the GST deferral scheme is introduced such entities may make a case for inclusion in the
scheme and so its merits should be considered as well by the Tax Review Committee.
TAX INCENTIVES IN PNG – POSSIBLE DIRECTIONS FOR REFORM
Question 4.1 – do stakeholders agree that PNG should focus on creating a tax system that is overall
simpler, fairer and more competitive?
Response:
Yes
Question 4.2 – would stakeholders agree to a trade-off between removing existing incentives with
other reforms that focused on making the tax system simpler, and more competitive overall?
Response:
Removal of existing incentives has to be thought through carefully as some of these arise from
existing long term agreements signed by the Government and the project developers as well as may
affect international relations particularly form major aid partners. Transitional provisions reflecting a
phased approach should be considered. However, this may prove difficult. The approach may be to
21
tidy up the incentives regime and simplify or make it clearer for ease of administration and
application.
Question 4.3 – do stakeholders agree that there is a need for a framework to guide the granting and
management of tax incentives?
Response: Yes.
Question 4.4 –should PNG consider formalizing the process for the granting of tax incentives,
similar to the process adopted recently in the Solomon Islands?
Previously there was in place an interagency committee on taxation incentives co-ordinated by
Commerce and Industry with Treasury, IRC and Customs though that had fallen through.
If there is to be such a committee it should be a sub-committee of the CACC comprised of the above
agencies and other relevant agencies so it is centrally oversighted by the Chief Secretary and chaired
by Treasury rep as matters of incentives pertain to tax/customs policy as well as tax/customs admin
and ultimately affect the government treasury.
However, this may result in the granting of more incentives if clear guidelines with little discretion
are not defined.
The alternate should be that there should be a commitment to simply operate within the regulatory
framework rather than provide exceptions for all and sundry that approach Government. The
Executive Governments ability to contract should be on standard templates that reflect the regulatory
regime with no room for negotiations, any tax incentives should be refered to Parliament through a
bipartisan ‘ways and means’ Parliamentary Committee for proper scrutiny and Parliamentary debate
especially of State contracts requiring law changes.
Question 4.5 – do stakeholders consider that there is a need to create a new body for the carriage and
formulation of National Strategic Economic Development Plans in PNG, with part of its role being to
ensure that consideration of targeted interventions using the tax system are placed in a broader
economic context?
Response: Yes but discretionary allowance in its mandate must be minimised in a law to avoid lobbying and
dissuade corruption.
Question 4.6 –what are stakeholder’s views on the proposed principles to guide the award of tax
incentives in PNG? Are there any other principles that should be included?
Response: Agree
Question 4.7 –do stakeholders consider that there is any merit in amalgamating existing incentives
into a single piece of legislation or into a part of existing legislation, such as the income tax act?
Response:
22
The consolidation of all existing incentives onto a single piece of legislation would not be an easy
task because it is spread out in several laws and covers several subjects some of which flow logically
as an exception to a general rule and by removing it and placing it elsewhere in a consolidated law
would create even further complexities.
Rather, the basis which gives rise to the creation of tax incentives should be carefully considered. In
practise, most incentives have arisen because of the Executive Government’s ability to contractually
bind the State especially with project agreements.
Parameters around the use of the Executive arm of Government to bind the State should be spelt out
either in the Constitution itself or in the Public Finance Management Act. These parameters should
reflect how tax incentives are to be used as part of the bargaining process if it is to be used at all.
Otherwise, what is in the tax laws must be complied with.
With some large projects, the Government may not be on an equal footing to bargain with large
MNEs and in such cases promises are made and bargains are agreed to which includes fiscal
incentives whereby the State has contractually agreed to forego or withhold its right to tax.
Such matters ultimately concern public revenue and should consistent with s209 of the Constitution
be tabled in Parliament for parliamentary approval before any tax incentives are given. And I also
refer to my earlier comments regarding usurpation of the legislative power by the Executive
Government.
Further, for transparency purposes, standard project agreement templates endorsed by the State
Solicitor should be made available publicly on government website and issued to all potential foreign
investors. This should clarify what the position is regarding fiscal incentives. At best, the fiscal
incentives should reflect existing tax/customs law with very little room for negotiation.
Question 4.8 –which Government portfolio is best placed to have ultimate responsibility for tax
incentives?
Response. Each department and agency pursues differing objectives: for some the promotion of investment
means creation of jobs and other flow on benefits for PNGns and if that means taxes are sacrificed
that is considered a more efficient way for State participation. However, whether projects with tax
incentives do achieve their intended public policy objectives that is something that requires further
study to fully appreciate its impact.
Regardless, the ultimate responsibility for tax incentives should rest with Treasury as taxes foregone
ultimately affect the treasury of PNG and Treasury as responsible department that decides tax policy
it is fitting to place that responsibility with Treasury Department.
Question 4.9 – do stakeholders agree that the tax incentive report should be given greater
prominence in the annual Budget, and include the policy rationale for each incentive? Should a
separate report be prepared?
Response:
23
Yes, because tax incentives ultimately affect the Government revenue and are public funds foregone.
Question 4.10 – how can PNG most simply estimate the value of the tax incentives it provided?
Response: I agree with the options discussed in the Issues Paper however IRC and Customs staff numbers
should be increased to focus on the data compilation which would principally arise from returns
lodged, tax credits granted and indicate the numbers and the size of the firms operating in a particular
sector or group that enjoys the incentives.
Initially, there should be a mandatory field in the returns lodged requiring taxpayers to indicate the
value of the incentive being the taxes foregone and this should be compiled by the revenue agencies.
To effectively report on taxes foregone in incentives, IRC needs to employ more economists and
statisticians. Alternatively, this should require effective collaboration between IRC, Treasury and
NSO.
Question 4.11 – do stakeholders agree that the annual report on the value of tax incentives should
include the value of any taxpayer of project specific incentive?
Response: Yes, such data should be compiled from tax returns and customs entries.
Question 4.12 – do stakeholders agree that there needs to be some effort in evaluating the ongoing
value of revenue incentives provided in PNG? Which incentives are most in critical need of
evaluation?
Response: Charities, Aid, GST Zero-rating, all ad hoc taxpayer specific exemptions existing in the Income Tax
Act.
OTHER ISSUES:
Question 5.1 – do stakeholders agree that, before any decision is taken to substantially change the
ITC scheme (including guidelines) an independent, third-party audit of the scheme is required?
Response: Yes, preferably by an international reputable agency.
Question 5.2 – for firms that have utilised the enhanced deduction for R&D that was previously
available, how did the incentive promote investment in research and development that would not
have otherwise occurred? What broader benefits to PNG and the PNG economy did that research and
development produce? How might a future R&D concession be framed differently?
Response:
To answer the later part of the question, it should have been framed to link the Intellectual Promotion
Office (IPO) industrial designs, copyright and trademarks laws and be recognised for tax concession
after the IPO grants a patent for an invention if no patent is issued at least the IPO should certify that
24
expenses towards the creation of an invention or design has been expended. Where possible the
assistance of the World Intellectual Property through the IPO should be explored to assess what
assistance they can provide.
The role of the Ministry of OHE, Science and Technology and Universities should be explored to
ascertain how they can contribute.
Question 5.3 – what value, if any, do the existing research and development incentives (available
under section 95) continue to provide?
Response: Taxpayers or other beneficiaries should provide a response to this question.
Question 5.4 – do stakeholders agree that reform of the corporate income tax, with a view to making
PNG more attractive to international investment, should focus on a reduction in overall rates rather
than the provision of targeted tax holidays to specific sectors?
Response: Yes, tax holidays are administratively difficult to administer, encourages harmful tax practises,
creates an uneven playing field and it is not clear whether it serves its intended public policy reasons.
However, a reduction of the tax rates should be considered carefully as PNGs tax base is small and
some incentives such as those to SMEs or PNG businesses to broaden the tax base should be in place
before the corporate tax rates are reduced because Government revenue will be affected.
Theoretically, a reduction in tax rates should contribute positively to wealth creation and improved
living standards.
Most tax rates within the ASEAN region are much lower than that of PNG but they may have
broader tax bases and more efficient tax administrations then PNG, still it is about time PNG
considers reducing tax rates to be on par with the ASEAN region and doing away with complicated
incentives that do little to serve its public welfare purpose and more importantly encouraging local
participation through deferred reporting obligations and concessional tax rates.
Apart from attracting foreign investment, PNG should encourage domestic growth by providing
incentives for SMEs and especially indigenous businesses through a number of ways:
1. relaxing reporting rules for SMEs ( eg, monthly reporting obligations in GST, SWT are
too cumbersome and costly for SMEs-this should be relaxed to either quarterly, Six
monthly or even annual basis as in Australia for small businesses)
2. Simplify forms to provide for SMEs to pay only one type of tax every six months using a
simplified form and that can be deemed to cover all their monthly obligations.
3. There should be a sunset provision for such a scheme to apply
4. SMEs are already defined by BSP10
to mean those with a turnover of less than a million
Kina. This definition should be adopted by the IRC.
10
Re: current SME Banking brochure issued by BSP available on www.bsp.com.pg or at their branches
25
Question 5.5 – on what basis should consideration be given to providing exemptions/reductions to
GST/Import Duties/Excise?
Question 5.6 – is there value in clarifying, in law, the limitation on tax exemptions available to aid
organisations (for example, in clarifying that exemptions apply to the organization and its employees
only)?
Question 5.7 – what are stakeholder’s views about the value of GST exemptions provided for
individuals employed in relation to aid projects?
Question 5.8 – should project agreements not include a reference to incentives already available in
legislation?
Responses:
Responses to the above four questions are already provided in responding to other prior questions as
indicated above.
Question 5.9 – Do stakeholders agree that any provisions in a project agreement purporting to
provide tax treatment not generally available under the tax law should be published?
Response:
Yes, see comments above (separation of powers) regarding parliamentary supremacy in law-making
as guaranteed to it by the Constitution s109 and the potential of the Executive arm to usurp that
power when it agrees to bind the State by contractual obligation.
RESPONSE TO THE KEY FINDINGS BY THE TAX REVIEW COMMITTEE ON TAX INCENTIVES
IN PNG
Response:
I agree with all of the key findings of the Review Committee Key Findings of the Tax Review
Committee in its Issues Paper no 5 on Tax Incentives at page 27 reproduced below:
Key findings:
• PNG has in place a range of different tax incentives, seeking to achieve a variety of
policy objectives. However, there is an absence of a clear and recent policy framework guiding
the award of these incentives.
• Since 1999, no attempt has been made to assess the ongoing effectiveness of existing
incentives although the repeal/amendment of certain incentives highlights a number of
limitations.
• There is no consistent and consolidated legal framework for tax incentives in PNG, creating
confusion for taxpayers and their advisers.
26
• Taxpayer and project specific incentives continue to be a feature of PNG’s taxation regime.
• There is no clearly defined process for the consideration of and granting of tax incentives.
• Overall, there is limited transparency in the management of tax incentives. Of particular
concern is the inability of the Review to clearly identify a comprehensive list of tax incentives
provides either in project agreements or through gazettal notice.
• There is some reporting of the revenue foregone from tax incentives but this is limited by the
accuracy of the data and the operation of the tax secrecy provisions.
• As a result there is currently no clear picture of the cost to revenue of tax incentives PNG.
• There are concerns in the community about the fairness of concessions provided to
particular sectors of the economy, in particular the mining and petroleum sector.
• At the same time, recipients of tax incentives continue to highlight their ongoing importance
and value.
• International experience and evidence suggests that there is no clear link between the
provision of tax incentives and economic growth.
ADDITIONAL VIEWS:
It should be noted that PNG is part of the global community and firms seeking to invest in PNG do
not necessarily base their decision solely on taxation. PNGs abundant natural resources will lure
them in anyway. There is no point in offering incentives. We have the resources, they will come.
Most Foreign Direct Investment (FDI) is sector specific (resources).
Tax incentives should not be introduced in isolation of these facts as they affect the behavior of a
MNE or foreign firm with the profits it derives from PNG’s non-renewable resources or other
activities in PNG.
The challenge is to maximize the taxes from the proceeds of the income that is derived from PNGs
resources.
The tax regime is overly complicated by the myriad of taxation incentives currently available. This
creates complexity in administering the tax and to a lesser extent customs laws and opportunities for
profit shifting and base erosion.
Further, it is observed that some foreign service providers and PNG companies have operated
profitably without the use of any specific sector tax incentives.
To encourage growth and broaden the tax base, there should be a shift away from offering incentives
to foreigners only to include PNG’s SME sector and indigenous businesses to grow the SME sector
in PNG and encourage local entrepreneurship which should in turn contribute to broadening the tax
base.
27
PNG indigenous businesses should be exempted from/benefit from deferred reporting obligations and
operate in a less regulated atmosphere in order to flourish for a certain define period. For example,
the GST monthly reporting obligations should be deferred to either quarterly, six monthly or even
annually as is done for small businesses in Australia and this should be in place for say up to five
years to be reviewed though they would not be entirely exempt from lodging income tax returns
annually.
Most tax incentives have not contributed to any lasting improved living conditions for the average
PNGn and thereby not achieve its stated public policy.
If Government is serious about helping PNGns it should start by offering incentives to PNGns both
in the formal and informal sector including offering tax incentives to employed citizens who bear the
brunt of the taxes.
The dual salary system has outlived its usefulness as the universities and colleges are producing more
and more graduates who cannot find jobs because some expatriates have been occupying public
service positions for the last 8 years and whose salary is enough to hire up to 10 PNGn clerical
officers or 3 to 5 university graduates.
Although, not commonly regarded as a tax incentive it ultimately creates a strain on the national
coffers with no tangible benefit to PNG in improved human capacity and so ought to be reviewed.
PNG may be one of few countries in the world where its citizens receive a separate wage to that of
their foreign counterparts thereby discriminating our own professionals against so called expatriate
‘experts’ who continue working with the Government subsidizing their retirement homes in their
home countries through excessive gratuities and so called Special International Market Allowances.
Start with reviewing the dual salary system in the public sector and review the sustainability of all
expatriates who have remained employed with the State for more than five years as this demonstrates
localization plans(if any) have not produced any tangible results.
Movement of assets and funds (capital and labour mobility) across multiple nations has now become
across even easier than ever before with online banking facilities, ecommerce and global
improvements to transportation that costs of MNEs can easily be spread across multiple jurisdictions
resulting in cleverly crafted tax planning and erosion of the tax base and in some instance even tax
fraud.
This means co-operation amongst tax administrations must be increased and PNGs efforts to join the
Global Forum and other bilateral and mutual administrative actions amongst tax administrations to
counter tax evasion and tax fraud should be explored and supported.
The IRC should be supported in its administrative capacity with improved resources and flexible
operating rules especially regarding financial and management rules for a certain period to beef up its
resources (staff capacity and numbers) including reviewing the sustainability of support programs.