Papua New Guinea heading for economic meltdown

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Papua New Guinea heading for economic meltdown with new crushing tax

PORT MORESBY: The Dominant Player Levy (tax) to be introduced in Budget 2022 is set to trigger an economic storm, if not disaster, for all consumers in Papua New Guinea (PNG).

The tax, when enforced, will not only send consumer prices soar and pinch the pockets of the man on the street, but also stunt PNG’s economic growth.

The dominant corporates – Digicel, BSP and Association of PNG Superannuation Funds - have all voiced their displeasure against the Government’s bid to raise some multi-million Kina annually for its coffers.

However, it will be the consumers who will pay for the tax indirectly, as the levy are expected to be passed on to them by the corporates.

And, BSP has even said such a tax would be “regressive” as it would not promote competition or innovation. Corporates may even resort to controlling their growth to avoid paying the levy.

The tax is applicable to banks and corporates that have more than 50.1 per cent market share and will be taxed a flat amount of K190 million, irrespective of how much profit after tax generated by the bank or corporate.

Former Prime Minister and Ialibu-Pangia MP Peter O’Neill was spot on when he responded and said imposing additional taxes on banks and telecommunication companies would not solve the Government’s cash-flow problems.

He said companies would pass the taxes to consumers immediately.

PNG Cyber Monitor reproduces below details of the uproar as reported by The National:

Anger over new tax

November 25, 2021The NationalMain Stories

By SHIRLEY MAULUDU
MILLIONS of users of banking and telecommunication services in the country should expect to pay more for the services after a new government levy is announced in the 2022 national budget.
According to a leaked document, the source of which the Treasury Department is investigating, the Government is expected to announce in the 2022 National Budget:

• A BANKING levy as part of the Income Tax Act to collect K190 millon per annum; and,
• A TELECOMMUNICATION tax as part of the Income Tax Act to collect K95 million per annum.

Called the dominant industry levy, it yesterday drew the anger of the dominant players in the two sectors – the Bank South Pacific Financial Group Ltd (BSP) and the Digicel (PNG) Ltd. A business community source yesterday said government revenue from the proposed levy would most probably be used for election-related purposes.
“The fact is this – the Government does not have the money to do the things that it needs to do for next year, which is principally the election-related campaigns and politically-related expenditure,” the source said.
“The complexity we face right now is that a lot of that nation building development-related medium-term development plan three and all those policy-related projects, are going to be compromised because of the way the budget is designed for campaign and election-related priorities.
“They (Government) have to raise money in different ways, (such as) via these levies. They cannot find these money via development partners because the partners have a very targeted and stringent direction on financing.
“There is a strong likelihood that around 300 (Digicel) towers operated in the market, that are not simply generating any money whatsoever, but primarily for community service functions, will have to be shut down.
“This is because the money will be diverted to paying this tax. You are looking at mostly remote, rural towers that will not operate because of this cost. Some costs will be passed onto the consumers too.
“On the banking aspect, with BSP having more than 60 per cent of the market share, the bank will be affected too.
“Similar to the situation with Digicel, BSP has non-profit-making branches across the country.
“BSP will have to go through similar exercise as Digicel and determine whether they should shut these branches down.”

Levy will impact banking business: BSP

November 25, 2021The NationalNational

People entering the BSP Waigani Banking Centre in Port Moresby.

By SHIRLEY MAULUDU
ANY banking levy introduced by way of changes to the Income Tax Act as part of the 2022 budget will negatively impact the banking business, an official says.
BSP Financial Group Limited (BSP) chief executive officer Robin Fleming was responding yesterday to the proposed Dominant Player Levy that the Government is expected to announce in the 2022 budget to be tabled in Parliament today.
“This suggested BSP tax unfairly targets the only PNG-owned bank in PNG and the region,” he said.
He said any such tax would be “regressive” as it would not promote competition or innovation.
“The tax would be applicable to any bank that has more than 50.1 per cent market share and will be taxed a flat amount of K190million, irrespective of how much profit after tax that bank generates.
“By definition therefore, the levy can only apply to one bank – BSP.”
He said three Australian-owned banks in the country would avoid having to pay any additional tax, while a PNG-owned bank “will continue to bear a disproportionate share of company tax payments in PNG”.
“(As) BSP has around 65 per cent market share of assets in PNG, (we) would have to stop the growth in assets which would mean no lending and no investments in Government securities, in order for the tax to no longer be applicable.
“This would have implications on the availability of credit in PNG.”
He said BSP continued to bear a disproportionate responsibility of providing banking services to the people.
“BSP is the only bank in Papua New Guinea that has branches in every province and the only bank that maintains and operates a network of sub branches for customers in rural areas of PNG,” he said.
“A dominant industry player levy of K190m will reduce the amount of dividends we pay to our shareholders by a similar amount.
“Our shareholders include KCH, Motor Vehicle Insurance Ltd, Petroleum Resources Kutubu, Credit Corporation, TISA plus Nasfund, Nambawan Super and Comrade Trustees.”
He said BSP was not looking for special treatment but only equal treatment from the Government.

Proposed levy biased, says Digicel

November 25, 2021The NationalMain Stories

By SHIRLEY MAULUDU
DIGICEL PNG says a proposed Government levy which will affect the telecommunications company “is wholly discriminatory” and will have profound and irreversible impacts” on the people.
Digicel PNG chief executive officer Colin Stone said the proposed levy expected to be included in the 2022 national budget would impact the company’s future investment in PNG and “most certainly deter other companies from investing”.
“Digicel’s market position is as a result of the significant investment made since (it) entered the market in 2007,” he said. “We have invested heavily every year since, with a total investment to date of over US$1billion (about K3.45billion).
“Every single one of PNG’s 89 districts has been touched by Digicel, and we are proud of our enviable record of connecting more Papua New Guineans with each other, and the world, than any other operator in the market.”
Stone said any such levy would:

• HAVE a flow-on impact on pricing, which would make services more costly for people particularly in rural and remote areas;
• REDUCE the amount of money available for investment in new infrastructure, technologies and services;
• SEVERELY limit Digicel’s ability to continue to provide services in uneconomic rural and remote areas of Papua New Guinea; and,
• INCREASE future risk thereby discouraging further investment in PNG by other international investors.

“The proposed levy is targeted at an overseas investor and a single industry player, one who has a firm and demonstrable commitment to PNG,” he said.
“It is extremely disappointing there has been no consultation.”
He said Digicel was planning to:

• FUND improvements to more than 60 schools nationwide through the Digicel Foundation;
• INCREASE the 4G population coverage from 63 per cent to 82 per cent with 140 new towers and upgrades to a further 200 towers;
• EXPAND threefold rural 4G users by over 500,000 subscribers with subsidised handsets; and,
• INCREASE rural financial inclusion with expansion of the CellMoni service across the country focused on banking the unbanked.

O’Neill: Extra taxes will not help

November 25, 2021The NationalMain Stories

IALIBU-Pangia MP Peter O’Neill says imposing additional taxes on banks and telecommunication companies will not solve the Government’s cash-flow problems.
He said companies would pass these taxes to consumers immediately.
“We already have the highest bank fees and telecommunications charges by global standards. Why make our people suffer even more?” he said.
“Our people are already struggling to put food on the table for their families and prices of everything, including rice, bread, etc have increased substantially in the past two years.
“This madness must stop. Government needs to wake up.
“Our people are suffering.
“We need an economic rescue plan, not high taxes and more unemployment.
“Desperately trying to impose additional tax on banks and telecommunications companies is unnecessary and will not solve Government’s cash problems.
“It’s like milking the same cows over and over again will not improve production.”
Meanwhile, the Department of Treasury is investigating who leaked a National Executive Council paper on the proposed tax hike to the media.
Secretary Dairi Vele said the leaking of such documents was an offence under the Public Services (Management) Act 1995 and the Public Service General Orders.
He said the Department of Information and Communications Technology had been notified of the breach.
Vele said: “This is unacceptable and Treasury will act swiftly on the unprofessional behaviour of any officer.
“The Government must have the trust of the public service to act impartially for the good of the people.
“The design and management of the (2022) national budget is the core responsibility of the Department of Treasury and any officer that seeks to undermine that responsibility will be dealt with.”