Papua New Guineans to lose K317m to ‘super levy’
News that matter in Papua New Guinea
PORT MORESBY: Hundreds of thousands of super fund members are
likely to lose K317 million a year if the Government’s proposed super levy on
Bank South Pacificv Financial Group Ltd (BSP) is implemented.
Both Nambawan Super Ltd (NSL) and Nasfund have warned
that the members are the ones who will suffer and pay with dwindling dividends.
The super levy, to hit dominant industry players like
BSP and Digicel, is set to retard Papua New Guinea (PNG)’s economy.
Read on to find out more and how the rippling effects are set to crush the economy as published by The National:
Workers to
lose K317mil
November 30, 2021The
NationalMain Stories
By DALE LUMA
HUNDREDS of thousands of super fund members are likely to lose K317
million a year if the Government’s proposed super levy on Bank South Pacific
Financial Group Ltd (BSP) is implemented.
Both Nambawan Super Ltd (NSL) and Nasfund have warned that the members are the
ones who will suffer and pay with dwindling dividends.
Nambawan Super Ltd (NSL)’s 200,000 members can expect to lose at least K23
million in dividends from NSL’s 12 per cent share in BSP if the levy is
implemented, chief executive officer Paul Sayer says.
“No consultation was held with authorised super funds (ASFs) about the levy (to
be) proposed in Budget 2022,” he said.
“No consultations had been held with key stakeholders about this new K190
million ‘market concentration levy’, indexed to grow each year by five per
cent, on BSP as the major bank in PNG.
“As a tax on profits, it is a tax on the shareholders and not BSP as a company.
“It is in fact K190 million worth of dividends that the State will be taking
away from shareholders.”
Sayer said BSP’s share price on the Australian Stock Exchange plunged 8.4 per
cent as international investors became dissuaded by the new levy.
“Nambawan Super is one of the largest shareholders of BSP with a 12 per cent
stake in the business,” he said.
“At this time, superannuation funds should be rewarded for helping to establish
a strong and successful bank in PNG.
“Instead, this unfair new levy will slash shareholder dividends and the share
prices which are based on dividends will also decline.
“This is effectively an extra tax burden on hardworking tax payers who are
already highly taxed throughout their working lives.
“At a time when PNG needs to be encouraging favourable economic conditions to
revive the country, this sort of unexpected, unconsulted new levies further
signal to foreign investors that the PNG business and investment environment is
uncertain and risky.”
The Association of Superannuation Funds of PNG president Ian Tarutia said the
association was “not in favour” of the levy.
“For Nasfund, with a 9.7 per cent shareholding, the total estimated loss to our
members is K115.4 million made up of K18.4 million in dividends and a K97
million fall in share value,” Tarutia, the chief executive officer of Nasfund
said.
“In fact, for the whole superannuation industry, when you combine all the super
funds direct and indirect holdings in BSP, the total loss amounts to more than
K317 million.
“The timing for this type of levy is not right. On behalf of our members, we
support the call for Government to revoke its decision and remove the K190
million banking levy.”
Super levy
bad for PNG
November 30, 2021The
NationalNational
Commentary by
THOMAS WEBSTER
THE Government’s proposal to introduce Super Profits tax on dominant
industry players in the Budget 2022 is of great public concern. It will affect
BSP in the financial sector and Digicel in telecommunications. The concern is
on the implications of the tax on domestic shareholders, particularly BSP, a
PNG listed company.
However, the wider implications for investment decisions by both domestic
enterprises, such as BSP, and for foreign investors, such as Digicel, are also
important considerations. BSP was created from the key financial reforms
undertaken by the late Sir Mekere Morata’s term as prime minster (2000-02).
The wholly Government-owned nearly bankrupt PNG Banking Corporation was sold to
Bank South Pacific, one of the smaller banks operating in PNG, under a merger
arrangement. It was then capitalised through a share offering on the Port
Moresby stock exchange in 2003, enabling institutions and individuals to buy
shares. BSP, as per its 2020 annual report, operates 78 branches and sub
branches nationwide, providing retail services in some of the most difficult
rural areas of PNG.
These are most likely cross subsidised by the profitable branches in the main
commercial hubs of PNG.
The largest operations are in PNG, but BSP also provides a large segment of the
banking services across the Pacific – the Solomon Islands, Vanuatu, Fiji,
Samoa, Tonga, the Cook Island and a BSP Finance branch in Cambodia. It has
worked hard to be the largest bank in the South Pacific and represents PNG well
in the region.
BSP has led the transformation of the banking services in PNG, introducing
innovative technology services in 2012 that has lifted customer services and
plays an important role in the sustained growth of PNG’s economy.
BSP has achieved a dominant position through the hard work of the directors,
management and staff. Their efforts have lifted BSP’s performance and
challenged others in the financial sector to also lift their performance,
improving general financial services across the country. BSP loan market share
in PNG is 65 per cent, much of it with the corporate sector.
BSP, using its dominant position, is also able to put together loan packages
with other financial institutions for a share of the loans needed by large
investors, thus, supporting growth and investments as well as to retain in
country, some of the profits generated from their operations. BSP also provides
critical services, cross subsiding and supporting the Governments housing and
small-to-medium enterprise policy nationwide.
Will BSP continue to be innovative and aggressive in investing in new
technologies, opening up of critical customer services to mostly trouble-ridden
rural regions of our country following the imposition of this tax?
With the introduction of this super profits tax, is the Government promoting
“mediocracy” forcing good private enterprises to be just as inefficient as the
National Development Bank” or for that matter “Telikom” and Bmobile,
institutions that the Government owns? In other words, is the super-profits
tax, a tax on success?
An entrepreneurial and profitable BSP is good for its shareholders and the
nation. A profitable BSP provides a model for other businesses to emulate. BSP
is leading the way in the region, challenging other PNG-based enterprises to be
more competitive providing quality services to citizens.
We need to promote competitive, efficient enterprises that can compete in the
global market, not curtailing efficiency and productivity of our national
business enterprises.
There have been many false and misleading statements in the social media about
BSP being owned by foreigners and big businesses.
The table below from the 2020 BSP Annual Report of major
shareholders, indicates the contrary.
The Government and other PNG institutions representing a wide cross-section of
ordinary citizens own about 85.75 per cent of BSP. Non-PNG entities own the
rest, about 14.25 per cent of BSP. The Government holds about 24.84 per cent
through Kumul Consolidated Holdings (18.15 per cent) and Motor Vehicles
Insurance Ltd (6.69 per cent). Workers and others in PNG through the Super
Funds hold 25.27 per cent; through Nambawan Super (12.09 per cent), Nasfund
(9.7 per cent) and Comrade Trustee Services (2.67 per cent).
Workers and others also own BSP shares through the Teachers Savings and Loans
Society (3.28 per cent) and also through shares held by the Super Funds through
holdings in Credit Corporation PNG Ltd (7.13 per cent) and Credit Corporation
Finance Ltd (0.64 per cent). (See chart for details)
Several million-kina worth of BSP shares were traded on the Port Moresby Stock
Exchange in the last couple of weeks (November) and these may change the
shareholder list. I suspect it may be one of the smaller institutions holding
less than one per cent of shares as there was no information provided to the
stock exchange on who was trading that would have a significant change in BSP
shareholding.
Given the timing of these trades, the identity of the seller/s may be worthy of
investigation as it could point to insider-trading.
In particular, did the seller have information on the impending Super Tax on
BSP to be introduced in the budget and the effect on the stock market price to
dump the stock? If so, then this is illegal and I hope the authorities will
look into this. The additional super profit tax will apply after the normal
corporate tax of 30 per cent of income is paid. This will result in less
dividends paid to shareholders.
In 2020, BSP reports indicate tax paid of K295 million and declared profit
after tax of K806,218,000. Shareholders were paid a dividend of K1.21 per
share. In the case of Nambawan Super, it owns 56,499,584 shares, so will have
received a dividend of K68,364,496.
Impact on super
funds (focus on Nambawan Super)
Nambawan Super’s 2020 Annual Report indicates that apart from
dividends from investments and unlisted entities, the fund also reported incomes
from interest paid for bonds and loans, and income from property rentals.
Nambawan Super then does a valuation of assets and declares a net gain, if net
values increase.
In the case of BSP, the value of its shares can decrease if profits are going to
be affected. Currently trading at K12.30 on the Port Moresby stock exchange and
at AU$4.65 (about K11.79) on the ASX, investors might sell to invest in other
opportunities, if the proposed windfall tax in the budget proceeds, and
dividend income is likely to be reduced. Nambawan Super and other super funds
as well, stand to lose in two ways if the super profit tax is applied to BSP.
First, there is less dividend paid by BSP to the Superfunds. Secondly, the
reduced value of their holdings will reduce the asset value. Both these will
now determine after expenses, that includes Government tax; the final return
credited to each member.
In 2020, Nambawan Super credited members one per cent interest on the balance
of their funds. This was much lower than previous years but due to the
Coronavirus (Covid-19) and impact on business, this was a reasonable return. It
looks likely that the Covid-19 is going to be with us in 2021 and 2022.
Property rentals are not at expected level and so property values have been
reduced. Furthermore, the Government owes Nambawan Super rentals of more than
K200 million .
If the super profit taxes are applied in 2022, and the economic conditions do
not improve, Nambawan Super may not be able to credit even 1 per cent. Worse,
member funds may be reduced by write-downs as a result of the losses. The
values and balance of funds may pick up in subsequent years, but a worker who
exits from the super fund during this period, will be paid a reduced level of
monies.
Workers are currently unfairly overburdened by taxes. Workers pay income tax on
the salary they receive. They pay a 10 per cent value added tax on goods and
services they purchase. Other salient taxes such as fuel tax, airport charges
are paid for when they want to travel.
They pay for health and education costs for their family members, and as we all
know in PNG, that also of extended family and relatives. These are services
that the Government should provide from the taxes that are paid.
Now, Government proposes to impose an additional tax that will reduce even the
life savings that workers will need to retire and live comfortably in their old
age. The worst affected are those without the time to recoup any immediate
losses imposed by the proposed additional profits tax.
The super funds have also innovated and are offering opportunities to
non-salaried Papua New Guineans to join the super funds through what they call
“Choice Super”. Traders, SME owners and farmers can save away their extra
earnings through savings with the superannuation funds.
They can then benefit from profits and earnings from listed companies such as
BSP, Credit Corp etc and also from unlisted companies such as Brian Bell,
Paradise Foods, Ela Motors, SP Brewery, Kumul Hotels etc where the super funds
have investments.
This is an excellent initiative where the super funds are providing an
investment vehicle for ordinary Papua New Guineans to invest in a diversified
portfolio of assets now, for the future, when they are old and unable to work.
The Government needs to support such initiatives in empowering financial
independence of individuals.
Where did the idea of
Super Profits Tax originate?
There was a proposal and recommendation for the tax to be charged for the
non-renewable extractive industries sector, when the PNG NRI organised a series
of research papers to inform the work of the Tax Review Committee headed by Sir
Nagora Bogan in 2014.
It was proposed that this tax would be triggered by the market prices so that
PNG would gain a fair share of the large profits being gained by mining
companies when mineral prices reached certain pre-agreed levels.
This was similar to the controversial super profits tax on mining companies
introduced by the Australian government, under former prime minister Kevin Rudd
in 2010, that was eventually scuttled.
I now read from the Financial Review of April 22 that Rudd is calling for a
reintroduction of the Super Profit Tax after the mining companies had announced
astronomical profits.
This case has now been taken up by the Greens (political party) as reported in
the Sydney Morning Herald on Sept 6, and that the Parliamentary Budget Office
is working on proposals to apply not only a miner’s profit tax but also some of
the successful large businesses, would also be charged extra profits tax. The
Australian miners were successful in lobbying to remove the super profit tax.
It would be interesting to see if the proposal for the super profits for the
broader business community will get endorsed by the Australian community and
government.
It is interesting that the idea of a general successful business tax that is
just being discussed and proposed for Australia is now being included in PNG
Budget documents. The merits and demerits of such super profits charged by
Government on successful businesses have not been debated and discussed fully.
What impact will it have on business productivity? Will it improve or reduce
performance levels. The genesis of super tax seems to be coming from the US
where a number of IT companies (Apple, Google, Facebook etc) and their owners
and investors trading on the NYSE have reached astronomical worth valued at
trillions of dollars.
The net worth of their owners and investors have reached billion-dollar levels,
creating a super-super rich class of billionaires, the types never seen before.
Democrats and other social justice advocates are pushing for super profit taxes
on these American companies who use public assets to make lots of money, and it
is only fair to redistribute the high profits they are earning now.
In the past, the US government had applied super profits tax during crisis and
war periods where some businesses were making lots of money during an
emergency, whilst others did not. But the current proposals and discussions
suggest that a super profits tax would apply to these large US-based businesses
that trade on the global market.
These are still at discussions stage as the G7 finance ministers agreed a few
months ago to setting framework for tax rates ranging as low as 15 per cent to
a high of 30 per cent on these multinational entities, making it fairer to all
countries. The current system where some countries set lower tax rates, attract
foreign investors to the disadvantage of other countries. Foreign investments
are difficult to attract, especially in PNG, given the poor law and order
image, and eroding public services. Corporate tax rates at 30 per cent in PNG
is comparable to most other economies, including Australia, but access to
public services lags far behind.
Some of us will recall that prior to Digicel’s entry into PNG in 2007, bmobile
had a monopoly. Mobile services were not only poor but non-existent in most
parts of the country.
Expensive hand sets and phone calls made mobile phone the privilege of the
rich, including the politicians and top bureaucrats.
Digicel came in, rolled out over US$800mil (about K2,808mil) worth of
infrastructure nationwide, and made calls cheap, thus making it more affordable
for consumers. Additional profits tax on Digicel is likely to reverse some of
these gains should the costs be passed on to consumers. We are now turning
around and penalising Digicel for being aggressive, innovative and challenged
the status quo investing more than one and a K500mil at that time.
Bmobile and Telikom, the State-owned entities, had the opportunity at that time
but were unable to invest and deliver efficient, quality services. The
Government needs to pay attention and fix their own business interests.
There is no natural monopoly.
It is a Government created monopoly and the Government must demonopolise by
reorganising its business interests, attracting other investors to come in and
challenge Digicel and bmobile and also in the supply of other essential utility
services.
To conclude, the proposed super-profits tax on banking and telecommunications
is bad for business, the consumers, and the nation at large.
Bad for business as it will dissuade investment. Bad for consumers as it will
raise cost of banking and telecommunications – services that are desperately
needed in the 21st Century and definitely so in a sprawling country where
communities are separated by the rough terrain, the many languages, and the
large distances. And bad for the nation since the super-profits tax will tax
successful businesses, forcing their competitors to strive for mediocrity.
Is this what our leaders want?
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