There were few tax surprises in the 2020-21 Budget. However, what was not there was just as significant as what was, according to KPMG’s Tax Partner in Papua New Guinea, Karen McEntee.

Speaking during Business Advantage PNG‘s recent budget briefing, KPMG’s Karen McEntee said there were ‘no new measures’ related to the government’s tax take in the 2021 National Budget.

‘The one surprise is notable by its absence and that is: the income tax rewrite and the Tax Administration Act were not mentioned in the Budget.’

She noted that there were some technical changes that reflect the government’s policy intent, however.

‘In relation to the carry-forward of losses, back in 2019 they made a change. The intention was that they would be capped at about seven years. However, in the [2018-19 and 2019-20] Budgets they hadn’t altered the legislation. So, now they have finally fixed that.

‘Losses from 2006 to 2018 can be carried forward to 2025, while losses from 2019 onwards will be capped at seven years.’

‘There is an increase in the threshold for the clearance from K1000 to K5000, just to make it easier for small businesses to import.’

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Another change has been made to the prescribed royalty with withholding tax, which McEntee said will now be paid directly to the Internal Revenue Commission (IRC) by resource developers.

‘There are also changes around provisional tax,’ she said. ‘In last year’s Budget, they actually changed the payment date … in this Budget, they have changed them back. They are more in line with the original dates: 120, 210, 300 [days].’

Penalties, collections and anti-avoidance

KPMG’s Karen McEntee

McEntee said changes had been made to the treatment of customs infringements.

‘The current penalties are not considered enough for smuggling. So, they are increasing those penalties and imprisonment terms. They have also introduced an excise tax for hybrid vehicles. There is a perception that if importers want to bring in those kind of vehicles they can’t at the moment because there is no particular category for that. A 20 per cent tax will be introduced.’

Another area addressed was the digitisation of land rental collections, which McEntee said is continuing: ‘we will move to online payments and filing.’

She said there are also changes to customs clearance measures: ‘there is an increase in the threshold for the clearance from K1000 to K5000, just to make it easier for small businesses to import.

‘The objective is to prevent employees from trying to categorise themselves as independent contractors [in order] to avail themselves of the small business tax regime.’

‘They also looked at some anti-avoidance measures. They have a new section in there with employees and independent contractors. They have said the objective is to prevent employees from trying to categorise themselves as independent contractors [in order] to avail themselves of the small business tax regime.

‘It is an anti-avoidance measure, but it will be interesting to see how it works in practice. It may have the opposite effect.’

Future changes

McEntee said that next year the government is likely to look at excise taxes and refinery arrangements to see whether they are anti-competitive.

As regards the telecommunications industry, there will be a consultation process with the regulator, NICTA, and other relevant stakeholders with a view to bringing in an excise tax: ‘a turnover-based universal access levy’. She said it could be ‘anywhere from 0.5 per cent to four per cent of turnover. They will look at a mutualisation arrangement involving sharing of infrastructure.

‘The banking industry will also get a look. It was also mentioned that, rather than targeting SMEs, they will look at the bigger earners like telecoms and the IT industry.’