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, during subsequent further consultation in late 2021, the expected commencement date was revised to 1 January 2022. Nevertheless, the draft bill was not presented in Parliament in November 2021 and there has been no formal commitments from Treasury in relation to either further consultation, nor the expected date of any entry into force once passed.
The most recent consultation in September 2021 highlighted a number of areas that could still be revisited by Treasury. 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
- placing further emphasis on self-assessment
- 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 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 PNG land and interests in companies whereby more than 50% of their assets are PNG land.
- 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.
- Banking and insurance: Specific provisions have been included that look to allow those in the banking and insurance sectors deductions (subject to caps) for provisions, marking a significant shift from the current Income Tax Act.
- 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 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.
2022 Legislative developments
In April 2022, further legislative amendments were introduced as part of a "cost of living" package involving personal income tax.
The tax free threshold available to individuals has been increased by PGK 5,000 per annum for the period from 1 June to 31 December 2022. This change will automatically expire.
If these are matters you are investigating in relation to your circumstances, then these potential changes should be considered and discussed with a PwC contact.