Papua New Guinea Tax Alert February 2020 - Deloitte
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Papua New Guinea Tax Alert February 2020
Papua New Guinea
In this issue
In this issue we bring you the updates from the developments that took place in December 2019 and January 2020.
Introduction Tax Amendments in 2020 Budget
Welcome to another issue of the Deloitte PNG Tax Insight! Treasury has circulated a draft Bill recently that contains some
material changes to the legislative amendments announced in
Every month, our tax team brings to you updates in the tax
the 2020 Budget. The amendments were passed into law with the
legislation, policy, practices and technical tax awareness that
Budget in December 2019 (which were summarised in our 2020
impact taxpayers every day.
Budget alert: https://www2.deloitte.com/pg/en/pages/financial-
services/articles/papua-new-guinea-budget-2020.html)
Sam Koim appointed as Commissioner General for the
Internal Revenue Commission In summary the changes are:
Sam Koim has officially been appointed as the Commissioner • Corporate Tax Losses (already in operation from 1 January 2019):
General for the IRC and is no longer just Acting in that role. The – The intention of the Budget’s changes to the loss carry forward
Commissioner mentioned his priority areas include increasing rules (to make them applicable prospectively) is confirmed in
the level of voluntary compliance and the taxpayer base. We the draft Bill’s amendments to section 101. Broadly, this means
understand that two of his focus areas will be to audit resource that losses incurred before 1 January 2019 would be carried
companies and review the tax treatment of contract workers forward for:
(refer below to the proposed amendments to the Income Tax Act – 20 years from 1 January 2019 for taxpayers who carry on
regarding contract workers). resource operations or engage in primary production; and
– 7 years from 1 January 2019 for all other taxpayers.
Compliance: Late Lodgement and Payment Penalty – Previous amendments reducing the carry forward period were
The Commissioner General issued a notice to all Taxpayers, which silent on taxpayers engaged in primary production, but this
was reiterated in the Tax Agents Bulletin No. 01 of 2020, that from 1 sector is included in the new subsection.
April 2020 taxpayers submitting returns or remittances forms after
• Provisional Tax – instalment dates to pay provisional tax (in
the due date will have applicable penalties immediately applied
operation from 1 January 2020):
by SIGTAS automatically. Beforehand, automated penalties were
– There is a further amendment to the provisional payment
only applied in respect of certain taxes. The biggest change will be
dates from the December 2019 amendments – First instalment
in respect of annual income tax returns and we recommend late
due 120 days preceding year end; second instalment due 210
returns are lodged before 1 April 2020.
days and third instalment due 300 days after the preceding
year end. The purpose of these changes is to allow provisional
Annual reconciliation
tax payment dates for taxpayers with substituted accounting
The due date for the annual reconciliation for all withholding taxes
periods (SAPs) to be aligned with their year end.
and Salary and Wages Tax (SWT) are confirmed for 28 February
2020. • Additional information to be provided by taxpayers who carry on
resource operations (in operation from 1 January 2020):
GST offset circular – In addition to the estimate of likely taxable income to be
As you are aware, the IRC made an announcement on 24 derived, the estimate must also contain details of costs,
September 2019 that Goods and Services Tax (GST) credits could production volumes and such other information as requested
no longer be used to offset against salary and wages tax (SWT) by the Commissioner.
liabilities. This is of great concern to taxpayers given the existing • Thin Capitalisation – Resource Sector (due to come into operation
difficulties in obtaining tax refunds from the IRC, a problem which from 1 January 2021):
we expect will be compounded by this decision. A joint accounting – We understand that the reduction of the ratio from 3:1 to 2:1
industry response was made to the IRC through CPAPNG in remains unchanged. We have noted to Treasury that the rules
October 2019. However, the IRC has issued Taxation Circular are tougher for resource companies as all interest is subject to
TC 2019/1: Use of GST Credits to Offset other Taxes Due which the restriction for resource companies whereas only non-PNG
reaffirms their decision. interest is restricted for non-resource companies.
As a consequence, the CR 1 form has been updated by the IRC to
make it clear that SWT is not a tax type against which GST credits
can be transferred to offset.
Potential deferral of CGT legislation
It is understood from Treasury that the introduction of a capital
gains tax is likely to be deferred until after the next election in
2022.
Papua New Guinea
• Imposition of Small Business Tax (to come into operation in Amnesty on Salary and Wages Tax Penalties
accordance with a notice in the National Gazette): The amnesty on penalties on salary or wages tax is currently
– In the previous amendments only individuals were subject to underway. Please refer for our December alert for details on this:
the Small Business Tax. This has been amended and refers to a https://www2.deloitte.com/pg/en/pages/tax/articles/png-tax-
“person” (which is a defined term and includes companies etc.); alerts.html
– The amount of tax payable changed-
If you have any further questions on the amnesty, which expires at
– Turnover less than K60,000, the tax is K250 for the fiscal year;
the end of March 2020, please let us know.
and
– Turnover of K60,000 or more (up to K250,000), the tax Leadership Contacts
is K62.50 plus 4% of the turnover of the taxpayer for the For more details please contact your key Deloitte contacts or any
quarter above K15,000. of the following:
– Consequentially, some changes were also made to the new
section 223A that deals with the procedural rules for small
business tax.
– The IRC indicates that it is getting ready for Small Business Tax
from an administrative perspective and projects it will be ready
by June 2020. Andrew Harris Declan Mordaunt
Partner Principal
New Tax Amendment proposed – Countering arrangements Tax & Business Services Tax & Business Services
to convert an employee into an independent contractor Tel/Direct: +675 308 7010 Tel/Direct: +675 308 7037
Further amendments are likely to be taken on board which deals andrewharris@deloitte.com.pg dmordaunt@deloitte.com.pg
with independent contractors. We understand the purpose
of the amendment is to introduce an anti-avoidance measure
to discourage employees and employers from converting
employment relationships into independent contractor
arrangements and thereby fall within the Small Business Tax
regime (above) rather than Salary and Wages Tax. The proposed
amendment will have conditions that must all be present before Sanchika Sutharshan Antonio Bernabe
an independent contractor will be treated as such. We note these Director Principal
conditions are quite difficult to satisfy. Tax & Business Services Tax & Business Services
Tel/Direct: +675 308 7160 Tel/Direct: +675 308 7057
It is uncertain how the proposed amendment will interact
ssutharshan@deloitte.com.pg abernabe@deloitte.com.pg
with the current legislation and the test of degree regarding
independent contractors (refer to the Taxation Circular TC 2013/4:
Distinguishing Employee and Independent Contractors and their
Tax Implications). There is a concern it will override the current
position in this regard, and thereby have a much wider impact than
what we presume is the intent.
Proposed 10-year tax holiday Kristel Van Rensburg
During the Back to Business breakfast on 30 January 2020, Prime Director
Minister James Marape mentioned the proposed 10-year tax Tax & Business Services
holiday for businesses that will be operating in identified free Tel/Direct: +675 308 7149
trade zones and comply with the potential investment threshold, krensburgh@deloitte.com.pg
PNG workforce composition etc. We will advise of further details
on the tax holiday and special economic zones once they become
available.
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