Papua New Guinea

Income Tax Act rewrite

In 2020, Papua New Guinea's (PNG's) Treasury released for public consultation the much-anticipated rewrite of the Income Tax Act (the Act). The consultation draft proposed a commencement date of 1 January 2021. However, despite consultation during 2021, 2022, and 2023, the Bill has not yet been presented to Parliament. As of the middle of 2023, there has been no formal commitments from Treasury in relation to the expected date of entry into force once passed, although the Treasurer did note that, in accordance with feedback from various stakeholders, the Bill's transitional provisions and certain subsidiary legislation would be fully developed before the Bill is presented to Parliament. 

This statement from the Treasurer is a reaction to the fact that despite the rewrite being advertised as an attempt to simplify tax law to enable greater participation, and ultimately greater compliance, in the tax system, a number of design features have permeated the initial and most recent drafts, including:

• simplifying and consolidating provisions in a more consistent and structured manner
• assuming the application of the legislated, but not yet enacted, Tax Administration Act by removing administration elements from the rewritten Act, and
• proposing to implement a number of policy shifts, including some that were previously unannounced.

A number of the proposed policy shifts that may impact companies include:

• Capital Gains Tax (CGT): The previously announced CGT regime has been further narrowed and included. Commencement of a CGT regime will require additional steps beyond the passage of the rewritten Act; however, it is expected to apply to interests in mining and oil and gas projects.
• Resources taxation: Whilst ring fencing of project income and expenditure looks to be maintained, changes to depreciation calculations, including deductions for acquisition costs and the reduction in the additional profits tax uplift factor from 15% to 13%, may impact the resources sector. Transitional provisions and how the measures will impact other projects taxed under the existing regime are the subject of further consultation.
• Taxation of employment benefits: The rewritten Act has opened the possibility of revisiting the taxation of employment benefits, in particular housing and motor vehicle benefits, from a ‘prescribed value’ approach to more of a 'market value' approach (albeit with a long transition period). Previous suggestions to revisit this policy were met with strong resistance from a number of stakeholders.
• Taxation of non-residents: Recent policy changes have sought to rely more heavily on withholding taxes (WHTs), as opposed to income taxes, to collect taxation from non-residents deriving PNG-sourced income. The current draft of the rewritten Act suggests a return to taxation of non-residents in PNG only where a permanent establishment (PE) exists in PNG, with WHTs applying to specific payments of amounts that may be deemed to have a PNG source.

Although the timing for the reintroduction of the Bill is uncertain, if the matters above are relevant to your circumstances, then these potential changes should be considered and discussed with a PwC contact.

2024 National Budget and other legislative developments

The 2024 National Budget (released in November 2023) contained very limited tax changes.

There were no changes to corporate income tax and there was no commitment to bring forward the rewrite of the income tax act.

The most significant changes were to make a temporary increase in the tax free threshold for salary and wages tax imposed on individuals (SWT) into a permanent change. There was also a repeal of the dependent tax rebate that was available for individuals to be applicable from 1 January 2024. However, during early 2024, in response to public unrest, the dependent rebate is set to be reinstated.

MLI and MAAC ratified

At the end of August 2023, the Internal Revenue Commission announced that Papua New Guinea has ratified the Multilateral Administrative Assistance Convention (MAAC) and the Multilateral Instrument (MLI), establishing Papua New Guinea's presence within the realm of international tax collaboration. However, there have been no consequential amendments introduced to legislation.