Bank taxes to put PNG in top-two

COMMERCIAL banks in the country will be subjected to one of the highest corporate tax rates (second in the world) globally, says Bank South Pacific Financial Group Ltd chief executive Robin Fleming.
And Kina Bank chief executive officer Greg Pawson said the bank strongly opposes any increase in corporate tax rate for the banking sector.
“Raising tax on banks to 45 per cent, from 30 per cent, will be detrimental (to the banking and financial sector). We vehemently oppose any increase in rate for the banking sector. And we are also disappointed with the lack of consultation by the Treasurer (Ian-Ling Stuckey),” he added.
According to Tax Foundation (https://taxfoundation.org/publications/corporate-tax-rates-around-the-world/), Comoros (Southern east Africa) has the highest tax in the world (50 per cent), now followed by Papua New Guinea (PNG) at 45 per cent.
Puerto Rico (37.5 per cent) is third and Suriname (36 per cent) is fourth.
Barbados (5.5 per cent), Uzbekistan (7.5 per cent) and Turkmenistan (eight per cent) are the lowest corporate rates in the world. Fifteen jurisdictions do not impose corporate tax.
The worldwide average statutory corporate income tax rate, measured across 180 jurisdictions, is 23.54 per cent. When weighted by Gross Domestic Product (GDP), the average statutory rate is 25.44 per cent.
Fleming said the increase in taxes would be a disincentive for potential new investors.
“BSP understands that the Government will be repealing the Additional Company Tax of K190 million per annum which applies only to BSP from 2023,” he added.
Fleming said the absence of competition in the banking sector had long been seen as an important issue for Bank of PNG and the Government.
“Whilst the banking sector has been seen to be profitable in recent years, the sector has absorbed many costs associated with delivery of banking services to the people of PNG which includes inflation-related adjustments to operating costs, exchange rate driven costs in license fees and other professional services that can only be provided from offshore, and costs associated with infrastructure services such as power and telecommunications.
“It is pleasing that the additional company tax act will be repealed. However, the overall amount of tax paid by BSP will not change and the profits after taxation that are available for distribution to all of our shareholders by way of dividends will still be negatively impacted.
“Our shareholders such as Kumul Consolidated Holdings, Nambawan Super, Nasfund, Teachers Savings and Loans, Credit Corporation and Petroleum Resources Kutubu will continue to receive reduced dividends as a result of the higher tax rate,” Fleming said.
Pawson said the unintended consequences of such a move would be detrimental for the banking sector in PNG which was already structurally imbalanced.
Treasurer Ling-Stuckey, during the tabling of Budget 2023 in Parliament yesterday, said the tax was expected to raise K240 million (for the Government) to fund vital core services.
“We will consult with the banking industry in the first half of next year, and consider if a different type of tax, such as an additional profits tax, may be more appropriate from 2024 onwards, while still raising required revenues,” he added.

Budget repair ongoing, says treasurer

PAPUA New Guinea cannot be economically independent if it continues to rely on international budget support, Treasurer Ian-Ling Stuckey says.
“We must, therefore, continue with our ongoing budget repair, economic reform efforts and the strengthening of key institutions to achieve economic independence by 2027.
“This will involve some tough choices in 2024. Budget 2023 is framed to fully allocate extra resource revenues to increased investments, and further household relief, rather than a Sovereign Wealth Fund or other savings options,” he added.
Ling-Stuckey said that means 2024 expenditures were expected to be below the estimated levels of 2023, with particularly larger cuts for the capital budget.
“Of course, this approach will be adapted, depending on developments in the international and domestic economies over the next year.
“And we may push some expenditures to 2024, if deemed necessary, to manage inflationary pressures or macro-economic stability. We will remain a responsive and responsible Government,” he said.
Ling-Stuckey said the Government needed to continue micro-economic reform efforts to increase jobs and grow incomes.
“Our businesses are clear that we must fix foreign exchange shortages, a foolish home goal from 2014. Fixing this problem is why our key business reform has focused on modernising our central bank.
“And we will continue to work with the International Monetary Fund and other partners to return to a freely convertible Kina. We will implement the policies and make the investments to get back to real non-resource growth of at least five per cent per annum,” Ling-Stuckey said.
He said cabinet endorsement would be sought for a comprehensive Public Sector Expenditure Review, “examining whether we are spending our monies in the best possible ways”.

New revenue-raising measures introduced

SEVEN new measures to raise revenue have been introduced in Budget 2023, Treasurer Ian Ling-Stuckey says.
The said measures are:

• IMPLEMENTATION of the revised dividend policy to increase revenue form state-owned enterprises with a projected revenue of K1.06 billion next year;
• INTRODUCTION of the Non-Tax Revenue Administration (NTRA) bill with a projected revenue of K550 million;
• APPLYING 45 per cent corporate income tax on banks, which should bring about K50 million in revenue;
• INTRODUCTION of a one-off 493 per cent increase on the excise duties for anti-social drinks to discourage consumption with an expected revenue of K30 million;
• INCREASE in progressive export duty rates of unprocessed logs by 20 per cent to discourage export of unprocessed logs and generate revenue to support the United Nations’ Biodiversity and Climate Trust Fund;
• INCREASE in personal income tax free threshold to K20,000 for one year starting Jan 1; and,
• REMOVING excise duties on fuel products (diesel, petrol and zoom) for six months starting Jan 1.

“The non-tax administration bill replaces the PMMR (Public Money Management Regularisation Act 2017) that the Supreme Court ruled as being in breach of constitutional requirements.
“Implementation of the bill is expected to collect more than K550 million in 2023 and continue to increase non-tax revenue collections over time,” Ling-Stuckey said.

Banks, shareholders lose: Official

THERE are some clear losers in Budget 2023, such as the banking sector and its shareholders, Nambawan Super Ltd chief financial officer David Kitchenoge says.
“The increase in Corporate Income Tax on the banking sector, from 30 per cent to 45 per cent, will ensure shareholders will lose with falling prices when the markets react to the news,” he said.
“If the increase is permanent, then it is a permanent loss to our members,” he added.
“BSP made K1.5 billion profit last year so that increases the tax from K190 million to K225 million. Not only BSP, but it is now a tax on the banking sector.”
Institute of National Affairs executive director Paul Barker said the banking industry would be concerned with the tax.
The additional company tax only hit two dominant industry players, BSP and Digicel.
“It is a one off opportunistic tax. Now they are trying to make it less crude and say it will be across the board for all banks,” he added.