port moresby papua new guinea - pwc new guinea – tax facts and figures 2002 contents page...

Papua New GuineaTax Facts and Figures 2002

Port MoresbyPO Box 484

6th Floor, Credit HouseCuthbertson StreetPh: (675) 321 1500Fax: (675) 321 1428

LaePO Box 451

Second Floor, ANZ HausCentral Avenue

Ph: (675) 472 2644Fax: (675) 472 6270

Websitewww.pwc.com.pg

Your worlds Our people

This booklet outlines Papua New Guinea’s taxation lawsfor the fiscal year ended 31 December 2002. It is basedon the law as at 1 May 2002.

The information represents a summary of significantfeatures and should be used as a guide only. Furtherinformation or assistance may be obtained from either ofthe offices of PricewaterhouseCoopers listed at the backof this publication.

Changes in tax law and practice are advised to clientsand others on request through our specialist “Taxupdates”. If you would like to receive these and otherpublications of PricewaterhouseCoopers, or would likeinformation on our services to business in Papua NewGuinea, please contact either of our offices.

© 2002 PricewaterhouseCoopers. PricewaterhouseCoopers refers to the individualmember firms of the worldwide PricewaterhouseCoopers organisation. All rights reserved.

These notes are not intended to be comprehensive. Readers are advised thatbefore acting on any matter arising in these notes, they should discuss thesituation with a PricewaterhouseCoopers specialist partner.

Papua New Guinea – Tax Facts and Figures 2002

Contents Page

Liability to Income Tax 1Residence 1Gross Income 1Exempt Income 1Allowable Deductions 2

Taxation of Individuals 3Financial Periods 3Personal Income Tax Rates 3Assessable Income 4Exempt Income 4Advances of Leave or Superannuation 4Principal Allowable Deductions 4Dependant Rebates 5Education Expenses Rebate 5Private Expenditure 6Salary or Wages Tax 6Fringe Benefits 7Social Security Payments 10Provisional Tax 10

Taxation of Companies 11Financial Period 11Company Tax Rates 11Calculation of Taxable Income 11Exempt Income 12Overseas Losses 12Absence of Grouping Provisions 12Company Amalgamations 13Dividend Payments and Deemed Dividends 13Dividend Rebates 14Notional Tax and Provisional Tax 14

Mining, Petroleum and Gas Operations 15Income Tax Rates – Mining Companies 15Income Tax Rates – Petroleum Companies 15Income Tax Rates – Gas Companies 16Advance Payment Tax 16Additional Profits Tax 16Deductions for Mining, Petroleumand Gas Operations 16Mining Levy 16


Page

Compliance Reporting System 31

Lodgment of Income Tax Returns, Assessments and Payment of Tax 32

Double Tax Treaties 33

Payments to Non-residents 33Dividends 33Interest 33Royalties 33Management Fees 34Foreign Contractors 34Leases to Non-Resident Associates 35Non-Resident Insurers 35Overseas Shipping 35Tax Clearance and Foreign Exchange Procedures 36Transfer Pricing 36

Value Added Tax 37Rate of VAT 37Registration 37Output VAT 37Input VAT 38Accounting for VAT 39Agriculture and Second-Hand Goods 39

Other Taxes 40Interest Withholding Tax 40Training Levy 40Customs Duties 40Excise Duties 41Timber Export Tax 41Stamp Duty 42Gift Duty 42Probate Duty 43Land Tax 43Capital Gains 43Gaming Machine Tax 43

Page

Taxation of Other Entities 17Partnership 17Joint Ventures 17Trusts 17Unit Trusts 17Property Unit Trusts 18Landowner Resources Trusts 18Superannuation Funds 18

Industry Incentives 20Manufacturers 20Accelerated Depreciation for Manufacturers 20Double Deduction for Export Market Development Costs 20Export Incentives for Manufacturers 20Wages Subsidy for Manufacturers 22

Agriculture, Fishing and Tourism 22Accelerated Depreciation 22Primary Production 23Investment in Primary Production 23

Infrastructure Credits 23Prescribed Infrastructure Development Credits 23Bank Community Service Obligations 24

Regional Incentives 25Rural Development Incentive 25Lihir Incentive 26Bougainville Incentive 26Volcano Affected Area Incentive 26

Other Incentives 27Solar Heating 27Staff Training Costs 27Exemption of Certain Interest Income 27

Special Deductions and Restrictions 28Entertainment 28Management Fees 28Exchange Gains and Losses 29Gifts and Charitable Donations 29Preliminary Expenditure in Connection with Assets 29Profits on Leased Assets 30Interest 30Timber Operations 30

2

Allowable Deductions

Allowable deductions include revenue expenditureincurred in the production of assessable income or incarrying on a business for the purpose of producingassessable income (but see special provisions relating tosalary or wages expenses), depreciation, various specialallowances and losses of prior years.


1

Liability to Income Tax

Income tax was first levied in Papua New Guinea in1959. The power to levy income tax is one given solelyto the National Government by the Constitution.

Income tax is imposed on all residents of Papua NewGuinea, whether they are companies or individuals. Thetax applies to world-wide income. Income tax is alsoimposed on the Papua New Guinea sourced income ofnon-residents.

Residence

In broad terms, an individual will be treated as a residentof Papua New Guinea in a given year of income if theyactually spend, continuously or intermittently, more thansix months in the country in that year.

A company will be treated as a resident if it is incorporatedin Papua New Guinea or if it has its central managementand control in Papua New Guinea, or if it carries onbusiness in Papua New Guinea and has its voting powercontrolled by shareholders who are residents here. Trustestates have their own strict residence rules.

A Papua New Guinea resident’s taxable income iscomputed as follows:

Gross income from all sources XLess: exempt income Y

Assessable income X-YLess: allowable deductions Z

Taxable income X-Y-Z

Gross Income

Gross income includes income from personal exertion(employment or business), interest, dividends, royalties,allowances and bonuses.

Exempt Income

Exempt income includes education allowances,scholarships or bursaries, export sales of qualifyinggoods (see page 20), certain Papua New Guinea sourceddividend income and certain government pensions.

4

Non-resident rates are:

Taxable Tax Rates of taxincome there on on excess

K K %

Nil Nil 2516,000 4,000 3570,000 22,900 4095,000 32,900 47

Assessable Income

Each individual is assessed separately. There is no jointassessment for husbands and wives.

Taxpayers who have only employment income and arefully taxed at source by virtue of salary or wages taxneed not complete an annual income tax return.Taxpayers with other income such as interest, dividends,rental income, trust distribution or partnership incomemust disclose this in an annual income tax return.

Exempt Income

Distributions by a Unit Trust, a Property Unit Trust and aLandowner Resources Trust are exempt from income tax.

Advances of Leave or Superannuation

Advances paid from amounts owed in respect ofrecreation leave, furlough, or superannuation to enablean employee to purchase his or her first home are nottaxable at the date of the advance provided the cost ofthe property is K75,000 or less.

Principal Allowable Deductions

Salary or wage earners receive a 25% rebate forallowable deductions (refer to definition page 2).

Non-salary or wage earners are allowed deductionsincurred in earning their assessable income. Thesedeductions may include:

interest on borrowed funds

travelling expenses, in limited circumstances


3

Taxation of Individuals

Financial Period

The financial period consists of the twelve month periodending 31 December.

Personal Income Tax Rates 2001

The rates for residents are as follows:


K K %

5,500 Nil 2516,000 2,625 3570,000 21,525 4095,000 31,525 47

Non-resident rates are:


K K %

Nil Nil 2516,000 4,000 3570,000 22,900 4095,000 32,900 47

Personal Income Tax Rates 2002

The rates for residents are as follows:


K K %

6,000 Nil 2516,000 2,500 3570,000 21,400 4095,000 31,400 47

6

The rebate is the lesser of 25% of the net educationexpenses incurred (ie after deducting any subsidies orother assistance received) or K750 per dependentstudent child.

Notwithstanding the existence of this rebate, educationallowances paid by an employer to meet the annual feesimposed by a school or college for the purpose ofeducating a student child of an employee (but notincluding tertiary education) are tax free. In other words,the rebate only applies where a taxpayer does notreceive assistance from his or her employer.

Private Expenditure

Expenditure of a private nature such as dental or medicalcosts are neither deductible nor subject to rebate or credit.

Salary or Wages Tax

Salary or wages are widely defined to include, inaddition to normal employment related receipts andbenefits, any remuneration paid as consultancy fees orfees for professional services, where the remuneration ispaid wholly or substantially for personal servicesperformed in Papua New Guinea.

Important features of the salary or wages tax provisions are:

salary or wages are subject to fortnightly assessmentof tax, regardless of the employer’s actual pay period.The tax assessed is a final tax and is determined byreference to standard rate tables

a salary or wages tax declaration is required to becompleted by the employee on commencement ofemployment or when the employee’s circumstanceschange

the employer is responsible for the collection ofsalary or wages tax and payment thereof to theInternal Revenue Commission. The employer will beheld liable where under-deduction of salary or wagestax occurs

an employee receiving fully taxed salary or wages isgenerally not required to lodge a tax return unless heor she is in receipt of other assessable incomeexceeding K100.


5

gifts of more than K50 paid to a sporting bodyestablished in Papua New Guinea and qualifyingcharitable organisations

depreciation of income-producing assets such asfreehold, leasehold or company title buildings(except those situated outside Papua New Guinea),motor vehicles, machinery and equipment

rates, advertising and repairs to rental properties

losses incurred in deriving income overseas are notdeductible from PNG sourced income. Overseaslosses may only be carried forward (for a period of20 years) for deduction against overseas income.

Dependant Rebates

The allowable dependant rebates for salary or wageearners are built into the tax rate schedule.

Non-salary or wage earners who are resident in PapuaNew Guinea receive the following rebates for dependants:

First dependant 15% of gross tax with amaximum of K450 and aminimum of K45

Second, third and 10% of gross tax with afourth dependants maximum of K300 and a

minimum of K30

A dependant is a person whose separate net incomedoes not exceed K1,040 in the year and who is either:

a spouse of the taxpayer

an unmarried child of the taxpayer of less than 16years of age

a student receiving full-time education who is over16, but less than 25, years of age

a Papua New Guinea resident parent of the taxpayeror the taxpayer’s spouse.

Education Expenses Rebate

Where an individual incurs expenses in relation to theeducation of a dependent child at any primary or highschool (within or outside PNG), the individual mayclaim a tax rebate for the expenses.

8

Benefit Taxable ValuePer Fortnight

Leave Fares One annual fare for theemployee and his family tothe place of recruitment ororigin is exempt from tax.Additional leave fares are fullytaxable, however additionalleave fares for travel withinPNG for a person employedsolely in, or in connectionwith most resource projects.Additional leave fares foremployees serving in hardshipor remote areas may beexempted from tax at thediscretion of the IRC.

Contribution by employer Nil. However, an employerto an approved or is not entitled to a taxoverseas superannuation for contributions made tofund an overseas fund.

Meals Messing type meals: K30 perfortnight. All other meals aresubject to tax on the amountequal to the employer’s cost.

Public utilities, gas, If paid by the employer ondomestic services, behalf of the employee, notsecurity, club taxable to the employee,subscriptions however the employer is

denied a deduction for thepayment.

Telephone Fully taxable to theemployee at the employee’smarginal rate of tax.However, the employee canclaim a rebate for workrelated telephone costs.


7

Fringe Benefits

Benefits provided to employees are taxed at theprescribed values listed below:


Accommodationowned by employer Nil to K180 per fortnightrented by employer depending on area, marketwithin PNG value or market rental per

week.

provided outside PNG K180 per fortnight.

Mess / Barracks Nil to K45 per fortnightdepending on area.

Government Nil to K5 per fortnightMess / Barracks depending on area.

Housing Allowance The employee will be taxedon the excess of housingallowance over eligiblehousing expenditure and onthe prescribed value of thehousing. A PNG citizen whoreceives an allowance underan approved Low CostHousing Scheme is notsubject to tax on theallowance.

Motor Vehicle Vehicle and fuel provided byemployer: K100 per fortnight.Vehicle only provided: K75per fortnight.

Education Expenses Nil (see comments under (except tertiary education) Education Expenses Rebate

above).

10

pay-out of long service leave accrued to 31December 1992, where paid on termination to anemployee who has completed a minimum of 6 yearsof continuous service. The leave entitlement must notexceed 6 months per 15 years of service.

Social Security Payments

An employer of 20 or more persons must register withthe National Provident Fund (“NPF”), unless operating inan exempt industry (currently certain agriculturalsectors). Membership is compulsory for Papua NewGuinea citizens who work for more than 59 days in anythree month period, and voluntary for non-citizens.

Contributions are remitted by the employer at thefollowing rates, as a percentage of gross basic salary(excluding overtime, bonus and commission):

employee’s 5% minimum, plus voluntarycontributions up to 10% maximum

7% employer’s contributions which are nonrefundable.

In certain instances, the employer’s contribution is 9%(which includes a 2% surcharge to make good lossesincurred by the NPF).

A new compulsory superannuation regime has beenlegislated by Parliament. It is expected to come intoforce during 2002.

Provisional Tax

Provisional tax is levied on non-salary or wages incometo ensure that, as far as possible, all income is taxed inthe year in which it is earned.

Every taxpayer who earns in excess of K100 from non-salary or wages sources has a liability to pay provisionaltax. Provisional tax is normally calculated as being equalto the income tax assessed for the preceding year butcan be varied to a lesser amount if an application islodged with the IRC prior to the due date for payment.The tax is payable no earlier than 30 September of theyear of income.


9


Entertainment If business entertainmentexpenditure is reimbursed tothe employee by theemployer, the reimbursementof the actual expenditure isnot taxable to the employee.However the employer isdenied a deduction for theentertaining expenses.

Cash Allowances All allowances paid by theemployer are fully taxed atthe employee’s marginal rateof tax.

Note: An employee can apply to the Internal Revenue Commissionrequesting a variation in the amount of salary or wages taxto be deducted to take into account the expected rebate onwork related expenses. This variation must be made inwriting together with fully supported documentation foreach expenditure.

The following payments to employees, qualify to betaxed at the rate of 2%:

a distribution from a superannuation fund notexceeding the “prescribed sum” accrued to 31December 1992, where paid on termination. Adistribution of amounts accrued after 31 December1992 up to the “prescribed sum” will be taxed at 2%in the following three circumstances:

i. where contributions have been made on behalfof the employee for 15 years

ii. where the distribution is to an employee who isaged 50 years or over or who is subject toenforced early retirement, provided, in eithercase, contributions have been made for not lessthan seven years, and

iii. where the distribution is made as a result of thedeath or disablement of the employee.

12

initial year accelerated depreciation (page 20)

accelerated depreciation for manufacturers (page 20)

exchange gains and losses (see page 29)

deduction for employer’s contributions to asuperannuation fund are limited to 15% of anemployee’s fully taxed salary or wages. The fundmust be resident in Papua New Guinea and beapproved by the Internal Revenue Commission forthis amount to be deductible

bad debts (must be written off in year)

borrowing expenses (amortised over a maximumperiod of five years)

entertainment expenses non deductible except inspecific limited circumstances (see page 28)

management fees (restricted within certain limits) (see page 28)

losses of previous years (other than primaryproduction losses) may be carried forward for twentyyears – there is no carry-back

provisions and reserves for future expenditure are notallowable, eg provisions for holiday pay, long serviceleave and airfares

double deductions are allowed for certain types ofexpenditure (see pages 20 and 27).

Exempt Income

This is covered under Specific Income Tax Incentives(see page 20).

Overseas Losses

Losses incurred in deriving income from a source outsidePapua New Guinea are not deductible from Papua NewGuinea source income. Overseas losses may be carriedforward for up to 20 years to be offset only againstoverseas income.

Absence of Grouping Provisions

Companies are assessed to income tax on an individualbasis. There is no provision to group income or offsetlosses of associated companies.


11

Taxation of Companies

Financial Period

All taxpayers must lodge their tax returns based on a 31December year end unless they have approval from theInternal Revenue Commission to adopt a substitutedbalance date.

Company Tax Rates(other than mining, petroleum or gas companies)

Company tax rates do not distinguish between publicand private companies. The rates are:

Resident companies generally 25%Non-resident companies generally 48%

Resident companies are also liable to pay dividendwithholding tax at the rate of 17% bringing the effectiverate of tax on distributed profits of resident companies to37.75%. The dividend withholding tax rate may bereduced under a tax treaty, typically to 15%. Dividendwithholding tax is payable on:

dividends paid by the company

dividends derived by the company from sourcesoutside Papua New Guinea

certain deemed dividends.

A resident company paying a dividend out ofaccumulated dividend income is entitled to a credit forthe dividend withholding tax suffered, provided thedividend is on-paid within 7 years.

Calculation of Taxable Income

Whilst there are special rules for certain companiesincluding life assurance companies, non-residentinsurers, mining, petroleum and gas companies andshipowners, taxable income generally corresponds toaccounting income. However, there are importantexceptions, the major areas being:

depreciation (Internal Revenue Commission specified rates)

14

Dividend Rebates

Resident companies receive a full rebate of income taxon dividend income so that, in effect, no income tax ispaid on dividends.

Notional Tax and Provisional Tax

Notional tax is being phased out and is to be replacedby provisional tax. Notional tax imposes tax on the prioryear; provisional tax imposes tax on the current year.2002 will be the last year in which notional tax ispayable and will be the first year that provisional tax ispayable in full.

Notional tax is imposed by assessment issued by theInternal Revenue Commission (the “IRC”). For 2002, thetax will be calculated as 25% of the tax payable onincome derived during the year ended 31 December 2000;the tax paid is in respect of the 2001 financial year.

Notional tax is due for payment by 31 March in onelump sum. Alternatively, by election, it may be paid inthree equal instalments in March, June and September.

Provisional tax is imposed by assessment issued by theIRC based on the last return lodged. For 2002 andsubsequent years, 100% of the estimated tax is payable.

Provisional tax is payable in three equal instalments by30 April, 31 July and 31 October.

Applications may be made to reduce notional and/orprovisional tax assessed if, broadly, the tax due for theyear in question is expected to be lower than thenotional or provisional tax assessed. A company is notrequired to increase the amount of provisional taximposed by the IRC.


13

Company Amalgamations

Under the Companies Act 1997, two or more companiesmay amalgamate. The taxation implications uponamalgamation are summarised below:

cancellation of shares upon amalgamation constitutesa deemed disposal by the shareholder immediatelyprior to amalgamation for a consideration equal tocost or in the case of shares held as trading stock,either cost or market selling value

no restriction on deductions allowable for bad debts

consolidation of accrued income and expenditure

trading stock, assets and liabilities to be recorded atoriginal cost in the books of the amalgamated entity

consolidation of losses carried forward in theamalgamated entity, subject to the 50% continuity ofownership test

transfer of profits will not constitute payment of adividend.

Dividend Payments and Deemed Dividends

“Dividend” is defined in broad terms and includes mostpayments or distributions by a company to a shareholderin that capacity. A 17% dividend withholding tax (10%for mining companies) applies to most dividendpayments, including dividends paid to residentshareholders, however different rates can apply inaccordance with the various double tax treaties.

There is generally no tax on the undistributed profits ofan operating company, nor any requirement to distributea proportion of profits. However, a dividend may bedeemed to arise where:

a loan or other benefit is granted by a privatecompany to a shareholder or associated person

a liquidator makes a distribution from revenuereserves

an overseas investment is made on cessation orchange of business

a company dormant for three years holds 75% ofassets overseas

shares are sold as part of a tax avoidance scheme.

16

Income Tax Rates – Gas Companies

The rate applicable to gas operations is 30%. The rateapplies to both resident and non-resident companies.

There is no dividend withholding tax on dividends paidout of gas income.

Advance Payment Tax

Mining, petroleum and gas companies are required toestimate their tax liability by 31 March of each year andsubmit this to the IRC. Tax on this estimate is then payablein three instalments on 30 April, 31 July and 31 October(with re-estimates being made at the time of the 2nd and3rd instalments where appropriate). Although not coveredby the legislation, companies with substituted accountingperiods generally submit their estimate within 3 months oftheir financial year end and pay their instalments at theend of 4, 7 and 10 months after their year end.

Additional Profits Tax

Mining, petroleum and gas companies are required topay additional profits tax (“APT”) where the rate ofreturn exceeds a designated rate.

Broadly, projects earning an internal rate of return in excessof 15% will pay APT at 20%. Projects earning in excess of20% will pay APT at 25% and will be allowed a deductionin this calculation for APT paid under the first tier.

The rate of APT is the same for both resident and non-resident companies.

Deductions for Mining, Petroleum and Gas Operations

Special provisions apply to determine allowabledeductions for exploration expenditure (“AEE”) anddevelopment or capital expenditure (“ACE”).

Mining Levy

A mining levy is payable by mining operations holding amining development licence at 31 December 2000. The levy is based on a complex formula applied to eachaffected mining project individually.

The levy is to be reduced by 25% per annumcommencing in 2002.


15

Mining, Petroleum and Gas Operations

A single tax regime now covers all 3 industries whilst thedistinction between small-scale and large-scale miningoperations has been removed.

Income Tax Rates – Mining Companies

The corporate tax rate applicable to resident miningcompanies is 30% for income derived after 1 January2001. This is a reduction of 5% for large-scale miningoperations but an increase of 5% for small-scale miningoperations.

It is understood that the rate for branch (non-resident)operations is to be reduced to 37% although at presentthis remains at 48%.

Dividend withholding tax at the rate of 10% is payableby resident companies on dividends paid out of miningincome.

Interest income earned prior to the commencement ofthe investment recovery period on Special Mining Leaseis not taxed but instead reduces “Allowable CapitalExpenditure” relating to that project. Interest incomeearned by an exploration company is generally not taxedbut is instead offset against carry forward explorationexpenditure. Where the interest income is exempt (seepage 27) then this income is not applied as a reductionof such expenditure.

Income Tax Rates – Petroleum Companies

The rate applicable to petroleum operations is 50%where the project derived assessable income prior to 31December 2000. The rate applies to both resident andnon-resident companies.

The rate applicable to petroleum operations is 45%where the project did not derive any assessable incomeprior to 31 December 2000. The rate applies to bothresident and non-resident companies.

There is no dividend withholding tax on dividends paidout of petroleum income.

18

it acts only as an investment vehicle

it has a widely spread portfolio style of investmentswith no more than 10% of its investments being inany one company or debtor (other than the PapuaNew Guinea Government)

it complies with conditions prescribed in theRegulations concerning number of unit holders,dispersal of ownership of units and public trading in units.

Qualifying unit trusts are taxed at the rate of 30%.Distributions of income to unit holders are exempt fromincome tax.

Property Unit Trusts

Property Unit Trusts are taxed at the rate of 30% on thenet income of the trust. The tax is payable by the trustee.Distributions to beneficiaries are exempt from incometax. A Property Unit Trust must satisfy similarrequirements to those imposed on Unit Trusts if it is tobe taxed as a (Property) Unit Trust.

Landowner Resources Trusts

Where interests in various natural resources projects areheld in trust for landowners a trust may be approved bythe Minister for Finance as a Landowner Resources Trust.Net income derived by the Landowner Resources Trust istaxed at the rate of 25%. The tax is payable by thetrustee.

All distributions of income and capital by a LandownerResources Trust to its beneficiaries are exempt fromincome tax in the hands of the beneficiaries.

A Landowner Resources Trust deriving assessable incomefrom mining, petroleum and gas operations may also beliable to additional profits tax.

Superannuation Funds

A superannuation fund is resident if it is established ormanaged in Papua New Guinea.

The assessable income of a resident superannuation fundis subject to tax at the rate of 25%.


17

Taxation of Other Entities

Partnerships

A partnership is defined to include any association ofpersons in receipt of income jointly. The members of apartnership include their individual share of the profitor loss of the partnership in their own tax returns. The partnership itself is not subject to tax, although it isrequired to file a tax return.

Joint Ventures

Unincorporated joint ventures are permitted to carry onmining and petroleum operations and the respectivejoint venture partners are assessed on their individualshare of income on a project basis.

Joint venture operators of a resource project are requiredto submit a “consolidated financial statement” for thejoint venture as a whole, within two months of the endof the year of income. This consolidated financialstatement must list details of all expenditure incurredduring the year. Further, each joint venture partner willbe required to reconcile their tax return to theconsolidated financial statement.

The joint venture itself is not subject to tax and is notrequired to file an income tax return.

Trusts

A trustee of a resident trust estate is taxed on the netincome of the trust estate at the rate of 28%.

The beneficiaries of a trust estate are also subject to incometax on their entitlement to the net income. This isnotwithstanding the liability of the trustee, although ameasure of relief for tax paid by the trustee is allowed.

Unit Trusts

A unit trust is taxed as a normal trust (see above) unlessit satisfies the following requirements:

95% of the units are able to be redeemed or soldback to the trust

it is resident in Papua New Guinea

20

Specific Income Tax Incentives– Industry incentives

Manufacturers

Accelerated Depreciation for Manufacturers

Industrial plant not previously used in Papua NewGuinea is eligible for accelerated depreciation of up to100% of cost. The claim for accelerated depreciationcannot take the company into a tax loss (but can becarried forward and claimed in a subsequent year).

To qualify, the plant must have an effective life for taxpurposes exceeding five years and must be used by thetaxpayer or any other person (eg a lessee) in amanufacturing process.

Expenditure on new buildings for the housing ofindustrial plant, or for the storing of raw materials orfinished products also qualifies for the 100% accelerateddepreciation.

An accelerated depreciation deduction of 20% of thecost of most other new items of plant and equipment(with a life exceeding five years) used by a manufactureris available.

Double Deduction for Export MarketDevelopment Costs

Expenditure on export market development for goodsmanufactured in Papua New Guinea qualifies for adouble deduction. Qualifying expenditure includesoverseas publicity and advertising, market research,tender preparation, samples, trade fair expenses,overseas sales office expenses and certain travel costs.

The tax saving resulting from the allowance of thededuction may not exceed 75% of the expenditureactually incurred.

Export Incentives for Manufacturers

Taxpayers who export certain qualifying goodsmanufactured by them in Papua New Guinea areentitled to an income tax exemption of 100% of exportsales made prior to the last day of the 3rd year following


19

Dividends paid to a superannuation fund qualify fordividend rebates (see page 14) and are exempt fromdividend withholding tax if the fund is an approved fund.

Where an employer’s contributions to a superannuationfund exceed 15% of an employee’s fully taxed salary orwages, the excess contribution is included as assessableincome of the superannuation fund.

22

The exemption also applies to any new manufacturedproducts approved by the Internal Revenue Commission.

Wages Subsidy for Manufacturers

Companies manufacturing new products may receive ataxable wages subsidy payment for up to five years. Thesubsidy is based on a percentage of the relevant minimumwage for each full time citizen employee as follows:

First year of subsidy 40%Second year of subsidy 30% Third year of subsidy 20%Fourth year of subsidy 15%Fifth year of subsidy 10%

To qualify, the company must obtain a New ProductManufacturing Certificate from the Internal RevenueCommission. The subsidy is not available for productswhich receive tariff protection, or quota protectionwithout import parity pricing.

Agriculture, Fishing and Tourism

Accelerated Depreciation

Expenditure on new plant or articles:

used directly for the purposes of agriculturalproduction

used solely for commercial fishing activities ofresidents

boats and ships (and ancillary equipment) used solelyas dive boats or used by a person carrying on abusiness as an accredited scuba diving/snorkellingtour operator.

qualifies for the 100% accelerated depreciation deduction.

An accelerated depreciation deduction of 20% of thecost of most other new items of plant and equipment(with a life exceeding five years) used for the purposes ofagricultural production is also available. This allows anaccelerated deduction for items of plant or articles whichare not used directly in agricultural production.


21

the date export sales were first made. For the followingthree years, the excess of export sales over averageexport sales of the previous three years is exempt.

There is no tax deduction available for expensesincurred in deriving this exempt income (ie it isessentially the profits from export sales that are exempt).

Goods which qualify for the exemption include:

Activated carbon

Artefacts

Beverages ready forconsumption

Biscuits

Canned fruit andvegetables

Canned, loined andsmoked fish

Cement and concreteproducts

Ceramics

Chopsticks

Cigarettes

Clothing andmanufactured textiles

Confectionery

Dairy products

Dry cell batteries

Electrical appliances

Essential oils, oleoresins

Fabricated steel

Fibreglass products

Fishing nets

Flexible packagingmaterials

Flour

Foam products

Founded andmanufactured metalproducts

Glass products

Hand tools

Industrial and medical gases

Instant coffee

Instant full cream milk

Instant noodles

Jewellery

Livestock feeds

Matches

Motor vehicles

Non-dairy creamer

Paint

Paper products

Plastic products

Powdered cocoabeverages

Powdered coconut milk

Processed and cannedmeat products

Processed ginger

Refined petroleum

Rubber products

Sawn timber, mouldings,plywood and laminatedproducts

Ship and boat buildingand repairing

Soaps

Treated and processedcrocodile skins

Wood pulp

Wooden furniturecomponents and doors

24

owned by the State). Any project must be approved,beforehand, by the Department responsible for nationalplanning matters and all subsequent expenditure must becertified by both the Department and the InternalRevenue Commission as having been incurred. Capitalprojects that are required to be built under a resourceagreement are ineligible for the credit.

Bank Community Service Obligations

A licensed bank is entitled to a tax credit for specifiedexpenditure incurred on developing banking facilitiesoutside areas that are deemed to be already adequatelysupplied with banking facilities. The credits range fromK350,000 for developing a branch to K500 for theprovision of an Electronic Funds Transfer Point of Sale(EFTPOS) service in an area outside an area adequatelyor moderately supplied with banking facilities. Credits ofK175,000 for each branch and K100,000 for each sub-branch are available where these are provided in an areathat is moderately supplied with banking services.

The Regulations to the Income Tax Act list those areaswhich are deemed to be adequately or moderatelysupplied with banking services.


23

Primary Production

Outright deductions are allowed for certain capitalexpenditure including clearing or preparing orconserving land for agriculture, the eradication of pests,labourers’ accommodation (for labourers earning lessthan K35 per week) and for the conservation andconveyance of water.

Losses incurred in carrying on a primary productionbusiness can be carried forward indefinitely.

See also Infrastructure Credits below.

Investment In Primary Production

A primary production company which has incurredprimary production development expenditure (defined toinclude the cost of assets used for agriculturalproduction) may surrender its available deduction infavour of its shareholders. The amount surrendered toeach shareholder is in proportion to the respectiveamounts of their paid up capital (paid on or after 1January 1987). The total deduction available to ashareholder may not exceed the total amount paid ontheir shares. A shareholder may waive their entitlement ifthey so wish.

Infrastructure Credits

Prescribed Infrastructure Development Credits

A tax credit is available (from 1 January 1992) totaxpayers engaged in mining, petroleum or gasoperations and (from 1 January 2001) to taxpayersengaged in primary production. The credit operates bydeeming relevant eligible expenditure to be tax paid bythe particular taxpayer.

The maximum amount of credit that can be claimed islimited to the lesser of the amount of tax payable or0.75% (previously 2%) of the assessable income for theyear. If a taxpayer’s expenditure in a particular yearexceeds this limit, the excess can be carried forward fora period of two years.

A prescribed infrastructure development includes aschool, aid post, hospital, road and other capital asset aswell as maintenance of these assets (where these are

26

District Province

Lumi West SepikMaprik East SepikMenyamya MorobeMumeng MorobeNipa Southern HighlandsNuku West SepikOkapa Eastern HighlandsPangia Southern HighlandsPomio East New BritainRabaraba Milne BayRai Coast MadangRamu MadangTambul Western HighlandsTari Southern HighlandsTelefomin West SepikWabag Enga Wapenamanda EngaWonenara Eastern Highlands

Lihir Incentive

The Lihir incentive expired on 31 December 2000.

Bougainville Incentive

Certain income derived by businesses based in theBougainville province is exempt from income tax. Theperiod of exemption is from 21 April 1993 to 31December 2003. The exemption does not apply to salaryor wages tax, dividend withholding tax, foreigncontractors tax, non-resident insurers tax, overseasshipping tax, management fee withholding tax andprescribed royalty payments.

Volcano Affected Area Incentive

The Volcano Affected Area Incentive expired on 31December 2000.


25

Regional Incentives

Rural Development Incentive

Qualifying new businesses started in specified ruraldevelopment areas (listed below) are exempt fromincome tax on their net income from carrying on a ruraldevelopment industry for 10 years after the year ofcommencement of business.

Losses arising from these exempt activities are deductibleagainst taxable income from other activities.

Businesses involved in the exploitation of non-renewableresources (mainly mining, petroleum and gas companies)are specifically excluded from the exemption.

District Province

Amanab West SepikAmbunti East SepikAngoram East SepikBogia MadangFinschhafen MorobeGoilala CentralGumine SimbuHenganofi Eastern HighlandsIalibu Southern HighlandsJimi Western HighlandsKabwum MorobeKagua Southern HighlandsKaiapit MorobeKaintiba GulfKandep EngaKandrian West New BritainKarimui SimbuKikori GulfKoroba Southern HighlandsLagaip EngaLake Murray WesternLosuia Milne BayLufa Eastern Highlands

28

Special Deductions and Restrictions

Entertainment

With few exceptions, deductions are not allowable to thetaxpayer for expenses incurred in providingentertainment by way of food, drink or recreation(including associated travel and accommodation).

The exceptions, where entertainment expenses may bedeductible, include:

entertainment provided by a taxpayer who is in thebusiness of providing entertainment for payment (eghoteliers)

entertainment provided for the purposes of promotingor advertising a business or its goods or services tothe general public

entertainment provided in an “in-house diningfacility”

entertainment provided at a seminar

provision of food or drink to an employee pursuantto an industrial instrument or award relating toovertime

gratuitous entertainment to members of the publicwho are sick, disabled, poor or otherwisedisadvantaged.

Management Fees

Certain management fees paid to associates by taxpayersoperating in Papua New Guinea are tax deductible onlyto the extent of the greater of A or B, where A is thelesser of:

10% of the assessable income derived from therelevant part of the business

the same proportion of the worldwide expenses asthe proportion of the relevant Papua New Guineasourced income bears to the worldwide income.

and B is:

15% of the total allowable deductions attributable tothe relevant part of the business (excluding themanagement fees).


27

Other Incentives

Solar Heating

Expenditure on the acquisition and installation of solarheating plant for use in deriving income is allowable asan outright deduction.

Staff Training Costs

Employers are allowed a double deduction for thesalaries or wages of:

registered apprentices

indigenous citizens attending a full-time course at aGovernment training institute or a prescribed tertiaryinstitution

training officers engaged full-time in trainingactivities and who are not engaged directly inderiving the employer’s income.

The tax saving from these deductions is limited to 75%of actual expenditure incurred.

Exemption of Certain Interest Income

Interest income received from a “long term bond” isexempt from income tax. A “long term bond” is anapproved fixed interest security issued by the PapuaNew Guinea Government, or resident corporation orsociety, with a maturity date of not less than five yearsafter issue.

Interest income received from a foreign currency depositwhich has been approved by the Bank of Papua NewGuinea (the central bank) is exempt from income tax.

30

Profits on Leased Assets

Where a leased asset has been acquired andsubsequently disposed of for a consideration exceedingthe cost of acquisition, the profit is assessable, to theextent the proceeds exceed the total amount ofdeductions previously allowed as lease payments plusany residual value payment made on expiry of the lease.

Interest

Thin capitalisation rules apply only to mining, petroleumand gas operations. However, as a general rule,Exchange Control Regulations administered by the Bankof Papua New Guinea limit the amount of offshoreborrowings that can be made by all businesses operatingin PNG; these, therefore, in effect cap the amount ofinterest that is deductible.

Timber Operations

Capital expenditure in connection with timberoperations on access roads, port facilities, housing andwelfare facilities, and structural improvements may beamortised over the lesser of the period of use of therelevant assets or 15 years.


29

The relevant part of the business is that part of thetaxpayer’s business to which the management fees relate.The restriction does not apply where the payment wasmade to a non-associated person or is not for thepurpose or has the effect of tax avoidance.

The restriction on deductibility applies to payments byboth residents and non-residents.

Special rules apply to mining, petroleum and gasoperations.

Exchange Gains and Losses

Realised exchange gains arising from foreign currencydebts incurred or borrowings made on or after 11November 1986 are assessable. Realised business relatedexchange losses on such debts or borrowings aredeductible. Unrealized gains are not assessable andunrealized losses are not deductible.

Gifts and Charitable Donations

The following donations are specifically deductible:

Gifts of more than K50 of money, or property purchasedby a company within the 12 months preceding themaking of the gift, to a qualifying charitable body.

Monetary gifts with a value of more than K50 made by a company to sporting bodies established in PapuaNew Guinea.

Gifts of money, or property purchased by a taxpayer inthe 12 months immediately preceding the making of thegift to the Foundation for Law, Order and Justice.

A double deduction is allowed for gifts of money ofmore than K1,500, or property, made by a company after1 November 1996 to a trust for special law and orderprojects in Papua New Guinea.

Preliminary Expenditure in Connection with Assets

Expenditure including interest, incurred in constructing oracquiring an asset, is generally not deductible to the extentthat it was incurred prior to the date on which assessableincome is derived or the asset is first used for producingassessable income whichever is the later. This expendituremust be capitalised and is deemed to form part of the costof the asset for the purposes of calculating depreciation.

32

Lodgement of Income Tax Returns,Assessments and Payment of Tax

The lodgement of returns of income and the proceduresfor assessment, objection, dispute, and payment are bythe following rules:

Liability to lodge an Any individual whose income tax return gross non salary or wages

income exceeds K100.

Any individual who runs abusiness or is engaged in aprofession and whose grossincome exceeds K100.

All companies.

All partnerships, trusts andsuperannuation funds.

Lodgement (final Usually 7 months after thedate without penalty) end of the year of income.when lodged by a registered tax agent

Otherwise 2 months after the end of theyear of income.

Issue of assessment by Usually within 5 to 6 Internal Revenue months of lodgement ofCommission the return.

Payment of tax Not less than 30 days afterthe date of assessment.

For individuals, if provisionaltax is imposed in theassessment the tax will notusually be payable before the30 September following theend of the year of income.

Objection (protest) Within 60 days of service ofnotice of assessment.

Reference to Review Within 60 days of serviceTribunal or National Court of notice of disallowance of

objection.


31

Compliance Reporting System

Local contractors in certain industries are covered by theBusiness Income Withholding Tax regime.

The industries affected are:

AdvertisingArchitectureBuilding and ConstructionCleaning & MaintenanceConsultancyEngineeringEntertainmentJoinery and Cabinet MakingMotor Vehicle RepairsRoad TransportSecuritySurveying

The system also applies to non-work arrangements, suchas hire or lease of equipment or other arrangements bywhich assessable income is derived.

Businesses affected are required to have a Certificate ofCompliance and to produce it when entering into contractswith their customers. Payers are required to file an annualincome reporting statement where either they make aneligible payment of K500 or more in relation to onecontract, or eligible payments for several contracts exceedK3,000 in the year of income in relation to one payee.

The payer is required to deduct 10% withholding tax ifthe payee does not produce a Certificate of Compliance.

34

Royalty payments to a non-resident “associated person”are liable to a withholding tax of 30% of gross payments(subject to any double taxation agreement), with nooption to adopt the net income basis.

The definition of “associated person” is detailed andwidely drawn. Broadly, it encompasses relatives,partners, companies under effective common control,and related trust interests.

There is also a 5% withholding tax on mining,petroleum, timber and fishing royalties to landowners.

Management Fees

A 17% withholding tax applies to management fees paidto non-residents. The withholding tax only applies to theamount allowable as a tax deduction. The tax must beremitted to the Internal Revenue Commission within 21days after the month in which the management fees arepaid or credited.

Foreign Contractors

All non-resident contractors, other than individualsderiving salary or wages income, undertaking installationand construction projects or providing professional andconsultancy services in Papua New Guinea, andequipment lease and charter payments to non-residentsare subject to a foreign contractor withholding tax on adeemed taxable income equal to 25% of the grosscontract income which is taxed at the non-residentcorporate rate of 48%. This equates to a tax of 12%. Ifthe Internal Revenue Commission is satisfied as to theactual net profit, the foreign contractor may elect to betaxed on the basis of the taxable income as computedunder normal principles. Where the foreign contractorelects to be taxed on the actual taxable income, theamount which is deductible for general administrationand management expenses (other than expenses relatingdirectly to the derivation of the Papua New Guineaincome) may not exceed the lesser of:

5% of the gross income from the contract

the same proportion of the worldwide generaladministration and management expenses as thegross income from the contract bears to theworldwide income.


33

Double Tax Treaties

Double tax treaties have been entered into withAustralia, Canada, China, Fiji, Korea, Malaysia,Singapore and the United Kingdom.

Payments to Non-Residents

Rates of tax imposed on payments to non-residents and theliability of non-residents to PNG tax may be affected by thevarious double tax treaties which PNG has entered into.

Dividends

Dividends, including those paid to residents, aregenerally subject to 17% dividend withholding tax,except dividends paid by mining companies with attracta 10% withholding tax.

Dividends paid to non-resident superannuation funds areexempt from the withholding tax. Dividends paid fromincome from petroleum or gas operations are exempt.

Interest

Where interest is paid or credited by any person to anon-resident, 15% withholding tax must be deducted.The withholding tax is a final tax for non-residents.

The withholding tax does not apply to interest paid tooverseas non-resident financial institutions by companiesengaged in mining and petroleum operations in PNG.

Royalties

Tax is imposed on royalties and similar payments madeto non-residents who do not have permanentestablishments in Papua New Guinea.

The tax must be withheld by the payer on behalf of thepayee and remitted to the Internal Revenue Commission.

The tax payable on royalties to a party who is not an“associated person” is the lesser of:

48% of the net royalty, ie gross royalty, lessapplicable expenses, or

10% of the gross royalty.

36

Tax Clearance and Foreign Exchange Procedures

Any person (including a company) wishing to remit asum or sums exceeding K50,000 per annum from PapuaNew Guinea to any country must generally obtain a taxclearance certificate before the authorised dealers (ie therelevant trading banks) will grant approval for theremittance. Exceptions to this rule are transfers of fundswhich are trade related involving the physical movementof goods.

In dealings with scheduled countries (see below) anyremittance of funds from Papua New Guinea must becleared, even where sums do not exceed K50,000 per annum.

The scheduled countries are: Bahamas, Bermuda, SolomonIslands, British Channel Islands, British Virgin Islands,Gibraltar, Grenada, Hong Kong, The Isle of Man, Liberia,Liechtenstein, Luxembourg, Nauru, Netherlands Antilles,Norfolk Island, Panama, Switzerland, Tonga and Vanuatu.

Generally, tax clearance certificates can be readilyobtained, provided the Internal Revenue Commissiondoes not believe a tax liability will be avoided or evadedif a clearance is given and provided all filing and othercompliance obligations are up to date.

Central Bank (Bank of Papua New Guinea) approval isalso generally required to transfer funds offshore.However, authorised dealers can approve the remittanceof up to K500,000 per annum for payments such as thetransfer of surplus funds, dividends, management fees,royalty payments, sundry payments such as school fees,travel allowances and consultants’ fees. Once totalremittances have exceeded K500,000 per annum,exchange control approval must be obtained from theBank of Papua New Guinea.

Transfer Pricing

Where transactions involving non-residents are held notto be at arm’s length, the Internal Revenue Commissionmay impose an arm’s length consideration for incometax purposes and determine the source of any incomearising from such transactions.


35

The Papua New Guinea contracting entity must providethe Internal Revenue Commission with a copy of arelevant contract within 14 days of its signing and ensurethat satisfactory arrangements have been made to paythe foreign contractor’s withholding tax before makingany payment to the foreign contractor.

Where tax is withheld from the foreign contractor thedeductions are to be remitted to the Internal RevenueCommission within 21 days after the end of the month inwhich the payment was made.

Leases to Non-Resident Associates

Lease payments made to a non-resident associate for thelease of equipment may not be fully deductible. Thededuction is limited to an amount equivalent to thedepreciation on a diminishing value basis or, at theoption of the taxpayer, prime cost basis, and an amountfor interest on a notional loan at commercial rates hadthe resident taxpayer purchased that asset.

Non-Resident Insurers

All non-resident insurers who undertake insurancecontracts where the insured property is situated in PapuaNew Guinea or the insured event can happen only inPapua New Guinea are subject to tax. The tax iscalculated on a deemed taxable income equal to 10% ofthe total amount of premiums, which is taxed at the non-resident tax rates of 48% (companies) or 25%(unincorporated associations).

Overseas Shipping

Income derived by overseas shippers or chartererscarrying passengers, livestock, mail or goods out ofPapua New Guinea is taxable in Papua New Guinea.

The tax is calculated on a deemed taxable income equalto 5% of the gross income which is taxed at the non-resident rate of 48% in the case of companies.

The withholding tax is not payable if the home countryof the ship owner would not impose tax, in similarcircumstances, on PNG-owned ships.

38

3. Exempt sales

There is a fairly small category of exempt sales. Theseinclude:

the supply of financial services

the supply of educational services

the supply of medical services

the supply of housing or a motor vehicle to anemployee as part of an employment contract.

In contrast to zero-rated sales, a registered entity makingexempt sales is not entitled to any deduction for inputtaxes. Where an entity makes both exempt and taxablesales, the deduction for input taxes has to be apportioned.

Input VAT (VAT on purchases)

VAT is imposed on virtually all goods and services (withthe exception of those treated as zero-rated or exemptsales (see above)). There are three broad categories:

1. Imported Goods

VAT is imposed on the CIF value of the goods including,where applicable, any customs duty and excise. The VATis collected by the Customs Office.

2. Imported Services

Where services are performed outside Papua NewGuinea for the use or benefit within Papua New Guineaof a person resident in Papua New Guinea, for example,the provision of management fees, the recipient of theservices is required to impose and remit the VAT to theInternal Revenue Commission.

The VAT paid in this way is also eligible as an inputcredit, so the majority of businesses are unaffected bythis requirement; only businesses making exempt salesare ineligible to claim an input credit.

3. Locally purchased goods and services

VAT is charged by the supplier, where the supplier isregistered for VAT purposes.


37

Value Added Tax

Rate of VAT

Value added tax is imposed at the rate of 10% andapplies to the majority of goods and services supplied inPNG as well as to most imported goods and services.

Registration

Any person who carries on an activity, continuously orregularly, involving the supply of goods or services toanother person for a consideration, is required to registerif those supplies (not being exempt supplies) exceedK100,000 in any 12 month period.

Specified groups of companies may elect to be registeredas one entity. Equally a company may separately registerits various branches or divisions.

Output VAT (VAT on sales)

There are three categories of sales:

1. Standard Sales

This applies to the majority of goods and services soldby a registered entity. Input tax relating to these sales isfully creditable against output VAT (subject to a fewexceptions).

2. Zero-Rated Sales

Some goods and services will be subject to a zero rate ofVAT. These include:

exported goods and services

consumable goods for consumption outside PNG (egaircraft and ship supplies)

the supply of prescription drugs, medical prosthesesand prescription lenses

the supply of goods and services, other than cars, toa mining or petroleum company.

Input tax relating to these sales is fully deductible againstoutput VAT (subject to a few exceptions).

40

Other Taxes

Interest Withholding Tax

Interest withholding tax of 15% must be deducted fromany interest paid by a financial institution, the CentralBank or a company to a person resident in PNG.

Withholding tax deducted is creditable against taxultimately payable by the recipient on that income.

Training Levy

All businesses whose annual payroll exceeds K200,000are subject to a 2% training levy, calculated on thetaxable salary/wages, including benefits, of all personnel.The levy is assessed on an annual basis.

The amount of the levy payable is reduced byqualifying training expenses incurred in the training ofcitizen employees.

Customs Duties

Customs duties are imposed on the C.I.F. value ofimports at varying rates. With the introduction of VAT,the majority of manufacturing inputs attract no duty.Duty is now primarily imposed on items which areproduced locally in PNG. Rates of duty are, in general,to be decreased by 5 percentage points on 31 December2002 and again on 31 December 2005.

Some examples of customs rates are as follows:

Customs duty

Edible vegetables 50%Beer 50%Soap 35%Baths, showers 25%Most articles of wood 25%Plywood 85%Clothing 35%


39

Accounting for VAT

As a rule VAT must be accounted for on an accrualsbasis. However, registered entities whose turnover did notexceed K500,000 in the proceeding 12 months (or whoseturnover is not likely to exceed K500,000 in the next 12months) may account for VAT on a payments basis.

VAT on the sale of goods and services must berecognised at the earlier of when the invoice is issued orwhen payment is received. Separate rules apply to thesale of goods and services on hire purchase, lay-by orover a period of time. In these instances, VAT isgenerally accounted for on a pro-rata basis.

VAT on the purchase of goods and services can only berecognised at the time of receiving an invoice, exceptwhere the invoice covers a range of periodic paymentsin which case the VAT is pro-rated. To be able to claimthe input credit the purchaser must have a valid “taxinvoice” relating to the purchase. The format of the taxinvoice is specifically covered by the VAT legislation.

One important exception for which there is no inputdeduction (apart from those relating to exempt sales) isthe purchase or hire of a motor vehicle designed to carryless than 1 tonne or fewer than 9 passengers. There is noinput credit available on these transactions, unless thepurchaser is in the business of buying and selling, orrenting, motor vehicles.

Agriculture and Second-Hand Goods

Special rules apply where a registered entity purchasesprimary produce produced by the vendor in PNG orsecond-hand goods and the producer is not registeredfor VAT.

In these circumstances, the purchaser of primary produceis generally able to claim an input credit for a prescribedpercentage of the amount paid. The purchaser of second-hand goods can claim an input credit for the “tax fraction”(currently 1/11th) of the amount paid.

42

Stamp Duty

The National Government imposes duties on documentsevidencing certain transactions.

The following are the maximum rates of duty on varioustransactions:

Value PercentageK of Value

Conveyances of real in excess ofproperty (including K100,000 5%shares in certainlandholding corporations)

Transfers or in excess of 2%assignments of leases K100,000of land including miningor petroleum leases

Lease documents (lease 0.4%for a definite term – basedon total rental for periodof lease)

General insurance policies 6.5%

Share and stock transfers 1%

Loans 0.1%

Transfers or assignments of Duty leviedmineral and petroleum K5,000exploration licencesand on transfer of miningor petroleum information

Subject to certain conditions, stamp duty on the transfer of realproperty as the result of a company amalgamation is restricted toK500 per transaction up to a maximum of K10,000 peramalgamation.

Gift Duty

There is no gift duty as such. However, the Stamp DutiesAct may levy stamp duty on documents if there is a giftor if consideration is inadequate. The maximum duty is5% of value.


41

Duty can be waived where goods are to be importedand re-exported within 12 months (or some other periodas approved by the Collector of Customs) subject to theapproval of the Collector of Customs. A bond mustusually be provided.

Excise Duties

Excise, at varying rates, is imposed on certain locallymanufactured and imported goods (primarily alcohol,tobacco and fule products) as well as on goods deemedto be “luxury” items.

Some examples of excise rates are as follows:

Excise duty

Beer (not more than 3% alcohol) K34.49 per lalWine K53.41 per lalCigarettes of tobacco K127.07 per 1000Aviation gasoline K0.02 / ltDouble cab vehiclesnot exceeding 3.5 tonnes 40%Microwave ovens 30%Televisions 30%

Timber Export Tax

An export tax on logs (excluding plantation logs and sawntimber) is applied at a varying rate according the fob priceof the logs. This ranges from 10% of the fob price wherethe price / m3 does not exceed K90 to 65% of the log priceless K69.50 where the price exceeds K200/m3.


43

Probate Duty

There is no probate duty.

Land Tax

The power to levy land tax is vested exclusively with theProvincial Governments. In the Papua New Guineacontext, land tax is difficult to implement and facesmajor geographical and social problems.

Capital Gains Tax

There is no general capital gains tax in Papua NewGuinea. However, profits arising on the sale of propertyacquired for the purpose of resale at a profit, or from thecarrying out of a profit-making scheme, are fully taxableas ordinary income.

Gaming Machine Tax

A tax at the rate of 60% is payable by the operator onthe “taxable gross profit” of a site.

The Gaming Machine Act apportions revenue to thevarious participants in the following proportions:

Permit Holder 55%Machine Operator 10%Government 20%Gaming Board 15%

port moresby papua new guinea - pwc new guinea – tax facts and figures 2002 contents page...

Documents