Papua New Guinea
Income Tax Act rewrite
Papua New Guinea's (PNG's) Treasury has released for public consultation the much anticipated rewrite of the Income Tax Act (the Act), with a proposed commencement of 1 January 2021.
Whilst the full impact of the rewritten Act will emerge as its details are scrutinised over the coming months, the rewrite is advertised as an attempt to simplify tax law to enable greater participation, and ultimately greater compliance, in the tax system. In trying to achieve this, a number of design features have permeated the initial draft:
- 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 individuals 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.
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.
2020 National Budget
The 2020 National Budget included changes to introduce a new small and medium-sized enterprise (SME) taxation regime. The regime, which only applies to individuals and excludes employment income and income from professional services, applies such that all tax compliance obligations for the SME (e.g. goods and services tax [GST], personal income tax [PIT]) are satisfied where tax is calculated and paid on the following basis:
- 2% of turnover for an SME that derives less than 250,000 Papua New Guinea kina (PGK) in an income year, or
- a PGK 400 annual fee for a business with a turnover of less than PGK 50,000.
Once a taxpayer elects out of the SME regime, or exceeds the threshold, they will be taxed as an individual (i.e. at marginal tax rates).
The changes are intended to encourage the development and increased compliance of SME businesses in Papua New Guinea.