APRIL 7 2022
The Papua New Guinea tax take from mineral and petroleum companies is notably low, according to the Asian Development Bank’s Asian Development Outlook (ADO) 2022, which was released on April 6, 2022.
“Only 7.0% of all tax revenue in 2019, equal to 0.6% of GDP, came from mining and petroleum companies in the form of corporate taxes,” it said.
“This had fallen to 4.8% by 2021.”
The ADO said the ratio of tax to GDP in PNG has followed a declining trend, falling from 18.6% in 2013 to 13.0% in 2019, before the pandemic, and then further to 11.5% in 2020 and 11.7% in 2021.
“These ratios are well below norms in Asia and the Pacific, where the average ratio in 2019 was 14.6% in Southeast Asia, 14.9% in South Asia, and 22.9% in the Pacific,” it said.
“Compared with other low-income, resource-rich developing countries in 2019, however—11.5% in
Gabon, 13.8% in Brazil, 9.4% in Angola, and 9.3% in Equatorial Guinea—the PNG ratio is fairly typical.”
The ADO said aside from tax revenue, PNG benefitted from nontax revenue, including income from state-owned enterprises, authorities, and investments, that averaged the equivalent of 1.4% of GDP from 2017 to 2021.
“It also receives grants, which annually averaged 2.0% of GDP over the same period,” it said.
“A taxation review commissioned by the government and released in 2015 identified core taxation challenges for PNG:
- too much reliance on personal income tax,
- too narrow a tax base and resulting reliance on high rates for corporate and personal income tax,
- outdated and unclear tax legislation,
- overused tax discretionary incentives,
- (v) overly generous use of stability contracts in resource development projects, and
- a tax administration system ill-suited for business growth and development.
“In response to these challenges, the authorities developed with support from the International
Monetary Fund the Medium-Term Revenue Strategy, 2018–2022.
“It targeted three strategic reforms:
(i) amend tax policy to broaden the tax base and address distortions,
(ii) modernise and simplify tax legislation, and
(iii) improve tax administration and compliance.
“As a first step, a steering committee was established to lead the implementation of reform, starting with establishing the Revenue Policy Branch within the Department of Treasury.
“To strengthen tax compliance and administration, an office for large taxpayers was created in 2018. PNG customs underwent several administrative changes to boost tax collection, notably through stiffer enforcement and a crackdown on trade in illicit goods.
“The Customs Act, 1951 was amended in 2020 to increase penalties for traders evading tax.
“The Tax Administration Act, 2017 was introduced to clarify tax laws and require taxpayers to apply for a tax identification number.
“Further, significant revision to the Income Tax Act intends to simplify tax compliance, in part by introducing a simple tax for small businesses.
“It is important for PNG to sustain momentum toward tax system reform.
“A new medium-term revenue strategy, 2023–2027 is due for development to guide
reform.
“Strong leadership is needed, both political and in the bureaucracy, to ensure that sufficient attention and resources are directed toward its development and implementation.
“Continued support from international partners is also essential.
“Revenue collection can be improved and sustained by adopting international best practices and tax standards, including doing away with discretionary exemptions and tax concessions; expanding revenue agencies’ investment in technology; and implementing effective revenue legislation and policy.
“Finally, PNG must continue to consider carefully how best to tax mineral and petroleum companies, and it should seek the best international advice available.”
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