‘Super Tax’, GST removal get the thumbs down from businesses in Papua New Guinea

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‘Super Tax’, GST removal get the thumbs down from businesses in Papua New Guinea

PORT MORESBY: The Government’s proposal to remove the 10 per cent Goods and Services Tax (GST) on selective vital household goods and fuel products for a six-month-period is not well received by the business community.

The Manufacturers Council of Papua New Guinea said the GST removal would not help and that a cut in personal income tax would be more effective.

And Bank South Pacific Financial Group said the additional compant tax” (Super Tax) imposed by the Government is a tax on the bank’s shareholders.

PNG Cyber Monitor reproduces below reports published by The National on the issue of rising cost of living in Papua New Guinea:

GST cut impractical: Barker

March 28, 2022The NationalMain Stories

REMOVING the 10 per cent Goods and Services Tax (GST) for six months is an impractical solution to fight inflation, Institute of National Affairs executive director and economist Paul Barker says.
“Reducing excise duty on fuel would be an option and easier to administer,” he said.
“It is really not practical chopping and changing, say for a six-month period and we do not know how long the high prices will prevail, but it will likely continue beyond (the) six months.
“Reducing excise duty on fuel would have been an option and easier to administer, and it works through the value chain, including making locally produced staples, fruit and vegetables more affordable and accessible, especially with diesel, which is used for most freight and public transport.
“It reduces revenue, but does not give the wrong signal favouring fossil fuel use, as the negative signal (favouring the shift to renewables) is being provided by the high market price itself.
“Inflation has become a serious problem, not just in Papua New Guinea but around the world in recent months and weeks.
“It has been triggered by the global economic recovery as countries come out of the mire of the Coronavirus (Covid-19) and its restrictions, triggering shortages of a range of products, as a result of supply chain restrictions.
“This is imported inflation, which was expected to resolve itself over a few months as those shipping and other market chain disruptions sorted themselves out.
“The situation, however, has made itself substantially more serious over the past month, since the start of the Russian invasion of Ukraine, and the associated impositions of international sanctions on goods and services emanating from Russia.
“With both Russia and Ukraine being major global producers and exporters of a range of critical extractive resources and staple foods (notably wheat), its added major constraint and uncertainty in these markets, and strong further upward pressure on prices, with oil prices having been pushed above US$100 (about K351)/barrel again over the past weeks for the first time since mid-2014.
“The duration of this price hike clearly depends largely on the duration of this conflict.
“The world is actually swimming in energy supplies right now, from a variety of sources, with new technologies providing new opportunities and pushing down longer term prices. But, in the meantime, supplies are not readily available where the market needs them.
“With food supplies, the disruption may take longer to address, even if the war stopped tomorrow.
“This year’s planting of Ukrainian grain crops had been heavily disrupted, as well as subsequent harvests and shipping.” He said tackling inflation was a primary function of Central banks in all countries, with the usual first measure entailing the imposition of increased interest rates.
“Usually, however, Central banks avoid taking measures against oil price hikes as they are normally short term, with the Banks normally focused on tackling longer-term inflationary pressures, rather than seasonal or cyclical shifts,” Barker said.
“The beauty with the GST system as applied since it started in the 1990s, is its relative simplicity at a standard 10 per cent across the board. Some countries do have different rates for luxury or essential goods, children’s clothes and other items.”

Reduce personal income tax instead of removing GST: Council

March 28, 2022The NationalNational

BUSINESSES are mindful that many staple food items consumed by Papua New Guineans daily are purchased in markets and not subject to goods and services tax (GST), Manufacturers Council of Papua New Guinea chief executive officer Chey Scovell says.
“Market prices are increasing due to the inflated cost of living,” he said.
“The GST reduction will not help.
“For the past three years, industry has been calling on the Government to address the imbalance and reduce personal income tax.
“This will increase disposable incomes, benefit tax payers (employees and their companies), boost consumer spending and drive growth.
“It will not create new burdens on the collection.” Scovell said the Government’s quick decision to reduce GST caught many businesses off guard.
“We have been trying to get more details on the changes,” he said.
“It is presently all very vague.
“Businesses have welcomed the Government acknowledging that they can play a role in inflation.
“However, the proposal to cut GST on selected essentials (for a six-month period) has caught many off guard.
“It is not something that had been floated or considered.
“This policy change only further passes the burden of funding the State on wage earners and businesses.
“Whereas the great many that operate in the cash system and contribute very little are making a saving.
“There are also concerns that having different rates of GST on different items will be cumbersome and confusing to businesses and consumers.”
Scovell was reacting to Treasurer Ian Ling-Stuckey’s tabling of the changes to GST (for a period of six months) on Thursday.

It’s a tax on our shareholders: BSP

March 28, 2022The NationalMain Stories

BANK South Pacific Financial Group (BSP) says the “additional company tax” (Super Tax) imposed by Government is a tax on the bank’s shareholders.
Group chief executive officer Robin Fleming was reacting to Treasurer Ian Ling-Stuckey’s statement in Parliament on Thursday that the payment of K190 million in tax would be due in September.
“BSP’s view remains that the tax is a tax on BSP’s shareholders and that it is a tax that discriminates against the only PNG-owned bank in the region,” Fleming told The National.
“The BSP shareholders include Kumul Consolidated Holdings, Motor Vehicle Insurance Ltd , PRK, Nambawan Super Ltd and Nasfund will receive K190 milion less in dividends as a consequence of this tax.
“As dividends reduce there will be an impact on the share price of BSP with investors doing their analysis on the impact of lower dividends to their investments.
“Overseas investors will be far more reluctant to invest in BSP as the overall tax rate of 45 per cent is higher than any other bank in the region and will be one of the highest rates globally.
“Whilst the tax is not payable until September from an accounting perspective, the tax has to be taken up in full by BSP which will be reflected in BSP’s unaudited quarter one results which we anticipate being released to the market by end of April,” he added.
Fleming said one of the largest accounting firms in Papua New Guinea, which is a global entity offered their independent advice last week stated: “While the levy remains an impost on only two taxpayers in the country, the legislative mechanisms applied to create these additional taxation obligations remain at odds with the aims of tax reforms over recent years and does not appear to meet taxation best practice in terms of equity of application, and a key goal of tax being non-distortive in its application.”
“The tax establishes a precedent that any business which outperforms its peers may be subject to an arbitrary tax, outside of the accepted tax regimes, which can be introduced against any business by any government of the day
“This results in a high degree of uncertainty for businesses when they make decisions on investments and capital expenditure.
“There is also no certainty in relation to what tax will be in future years as a Government may decide to increase the tax beyond the legislated amount should they decide they want to generate more tax revenue.”