Papua New Guinea’s tax agency, the Internal Revenue Commission (IRC), has announced a tax amnesty to encourage the payment of taxes. In this interview with Business Advantage PNG, Acting Tax Commissioner Sam Koim reveals the IRC’s plans to boost tax compliance.

Acting Tax Commissioner, Sam Koim. Credit: Devpolicy

Business Advantage PNG: What do you see your key goals taking on this role?

Sam Koim (SK): Tax compliance is very low, with a rate of 9 per cent. So, if you like, non-compliance is 91 per cent. I need to close compliance gap and the collection of outstanding tax debts, amongst others.

I’ve actually announced one of the steps to reduce the debt, which is giving a tax amnesty until the end of March 2020 to all tax payers. If they come forward and pay their base tax – especially salary and wages tax – then I’ll be writing off the associated penalties.

A lot of businesses and companies are struggling with those penalties. One of the ways to not only reduce the tax debts but also collect some immediate revenue for the government is to take that initiative.

Then, we need to get the IRC’s productivity boosted. I’m looking at a system approach and how we can mobilise the entire IRC to go forward in the future, and at a sustainable level.

BAPNG: Do you have sufficient resources to do your job effectively?

SK: Of course we do need extra resources, and part of those will be the need to procure a new integrated tax administration system.

The current tax administration system is not compatible with the thinking I have to move into internet-based services and automation: going into digitisation, introducing services like ePortals, where taxpayers themselves can pay their taxes without human involvement or human discretion.

We are looking at procuring a new system that will cost us at least K100 million, so we’ve been asking government to put that into the Budget, because that will help us to introduce a lot of efficiency around revenue generation and help reduce burdens that are imposed on taxpayers.

My way of looking at taxpayers is not to create an adversarial environment where, ‘you taxpayers are the bad guys, and we are the right guys: you own up or we penalise.’ We would like to create an environment where we will treat the taxpayers as customers to our core business.

‘I see a substantial amount of non-compliance, including transfer pricing and aggressive tax-evasion measures.’

My ultimate aim is to create an environment of voluntary compliance. Part of that will be fostered by enforcement work, but also part of that is to create the right environment to introduce efficiency and reduce compliance burdens for taxpayers so it costs them less to comply.

Part of reducing the compliance burdens is the simplification of the tax laws.

Under the government’s Medium-Term Revenue Strategy (MTRS), a rewrite of the  tax laws is being undertaken. One of those laws is the Tax Administration Act that was passed in 2017. The new Income Tax Act is envisaged to be passed in mid-2020 and Treasury is spearheading that.

BAPNG: What are the key aspects of those revisions?

SK: Significantly, we will also have a new SME tax regime, and the introduction of a capital gains tax. The process of formulating those laws is with Treasury.

BAPNG: Would you expect, if the laws are passed by June 2020, that those two taxes would apply to the following tax year (2021), or that you’d be introducing them in 2020?

SK: Well, that’s not up to me, that’s up to the Parliament to decide when it comes into effect. I can’t speculate. That’s still a political process.

What we have to do here at IRC is put the administrative processes ready –aligning our systems, processes, forms and everything else, including the new IT system, to have it ready for the implementation.

‘What we don’t have here is a system of robust detection, and a centre where all the data can be analysed and decisions made with precision.’

The provisional time we’re looking at operationalising these laws is January 2021. It’s up to Parliament to make a decision on when they want us to implement.

BAPNG: A lot of people are suggesting that PNG doesn’t necessarily have a revenue problem but it has a compliance problem. If everyone paid their taxes, there would be enough money to cover government spending …

SK:  That’s a fair comment. After being here for the last three months, I see a substantial amount of non-compliance, including transfer pricing and aggressive tax-evasion measures.

What we don’t have here is a system of robust detection, and a centre where all the data can be analysed and decisions made with precision.

These are the capabilities that I intend to build during my time here.

BAPNG: PNG’s Investment Promotion Authority (IPA) is currently going through its own project, clearing up thousands of dormant businesses. Is the IRC able to work with the IPA on a project like that?

SK: We have a booth at the IPA, so we do share information. When companies are trying to wind down, the IPA seeks clearance from us to complete that process. Directors of companies can be liable for tax liability, even if the company’s deregistered, under the new legislations introduced.

BAPNG: Will there be any difference in the way you’ll be treating overseas-registered companies compared to domestic companies?

SK: Everybody will have fair and equitable treatment, whether overseas or local. If companies are engaging in illicit activity or aggressive tax evasion behaviour, then I will have no mercy on any of them. Everybody who is making money in this country has to pay a fair share of taxes to the government for the services they are benefiting from.