Dear Clients
With the review of Mining and Petroleum Taxation by the IMF and the establishment of a tax reform committee comprised of a number of past Commissioners General, tax reform in PNG seems to be just around the corner. Whether we will see any reforms in this year's budget remains to be seen. However, I am sure this year's PWC/Badili Club Budget Breakfast will provide an opportunity for an update on the tax reform process and to suggest to the Treasury ideas for tax reform.
From a PWC perspective our suggestions will include changes we have been lobbying for in 2013. Some of these are of course matters raised in prior years but experience suggests one year is not always enough! Consequently, the purpose of this note is to bring you up to date with submissions we have made in 2013 to enable you to join with me in measuring the success of our submissions and the Government's response at the 2014 Budget Breakfast next month. The following points summarise the areas of the law which we would like amended:
Import GST- The GST on importation of goods into PNG by most businesses results in no net revenue to the State, but the timing of collection is a potentially significant cost to business. PwC has recommended PNG operate a GST deferral scheme in respect of the importation of goods whereby payment of the GST due on import is deferred until the due date for lodgement of the GST return. As the input tax credit for the payment is allowed in the same return there is no net cash cost to the importer.
GST on Low Cost Housing - the current income tax and stamp duty law provide concessions which assist citizens acquire residential property. However, there is no similar concession for GST where a citizen acquires a home from a person who is registered for the purposes of the GST Act. We have suggested an amendment to zero-rate the supply of new housing to a value not exceeding K500,000.
Dividend withholding tax - The imposition of dividend withholding tax on dividends paid to resident companies is an impediment to the operation of company groups and has the potential to reduce the amount which would otherwise be available for future investment or available for repayment of debt. We have submitted this impediment should be removed by exempting from dividend withholding tax dividends paid to resident companies.
Management Fee (Withholding) Tax on technical fees - One of the consequences of the change to the definition of management fees in the 2005 National Budget is that management fee withholding tax now applies to fees paid for technical services rendered outside PNG. This includes technical fees paid to third parties. We continue to suggest that as this was originally introduced as a tax avoidance measure; management fee (withholding) tax should only apply to non-deductible management fees.
We have also suggested an amendment to ensure the management fee (withholding) tax only applies to services rendered outside PNG. This is to avoid any potential conflict between management fee withholding tax and foreign contractors’ tax.
Resource Project Amendments-
We have requested a technical amendment to deal with abandoned prospecting authorities and mining leases. The current law does not deal with exploration expenditure in respect of prospecting authorities or mining leases which have been surrendered cancelled or expired or allowable capital expenditure incurred on mining leases or special mining leases which have been surrendered cancelled or expired. However, specific provisions exist which apply to petroleum projects and designated gas projects, respectively. Consequently, this amendment is sought to ensure consistency between the minerals and petroleum industries.
The current rate of deduction for allowable capital expenditure (ACE) for new mining projects is 25% on a diminishing value basis. However, under the general rules for deduction of ACE the rate of deduction effectively switches to a straight line basis where the life of the project falls below 4 in the case of short life ACE. We have requested an amendment to ensure the rate of deduction is consistent with the standard provisions to ensure equity as projects approach the end of their lives and for smaller projects which may have an expected life of mine of less than 5 years.
We have requested an amendment to ensure the 10% dividend withholding tax applicable to dividends paid by mining companies applies to dividends paid directly or directly out of mining income. This would ensure the treatment of dividends paid by mining companies is the same as the treatment of dividends paid from petroleum or gas income.
Refund of Excise- A refund of excise is available in respect of manufactured goods which become unfit for human consumption. However, under the current law the time in which the claim for the refund must be made is within 14 days of the excise being paid. It has been suggested a more realistic time frame for making such a claim is 8 weeks.
Superannuation- We continued to lobby for amendments to the Superannuation law and income tax law to enable self-employed persons and partners in professional firms to have full access to tax effective superannuation savings as well as suggestions for age-based limits on the deduction of contributions.
Based on the most recent advice provided by Treasury the 2014 National Budget will be handed down on 19 November 2013. Consequently, I look forward to reporting to you at the Budget Breakfast on 20 November 2013. In the meantime, should you wish to discuss any of the above please contact me, Jason Ellis or Rajul Makan.
Regards
David Caradus
PwC | Partner
Direct: +675 321 1500 | Mobile: +675 7687 3459
Email: david.caradus@pg.pwc.com
PricewaterhouseCoopers PNG
6th Floor Credit House, Cuthbertson Street, Port Moresby
http://www.pwc.com/pg