Concerns over new tax increase

Editorial, Normal

The National, Friday August 28th, 2015

 PUBLIC reaction to the proposed increases in personal income tax and the goods and services tax is indicative of the Tax Review Committee’s insensitivity to the plight and well-being of working class Papua New Guineans.

Moreover, the committee headed by former Internal Revenue Commissioner Sir Nagora Bogan has ignored crucial recommendations made by leading think-tank National Research Institute to reduce personal income tax.

The committee, in its wisdom, swept the NRI’s report on the country’s “oppressive” taxation regime under the carpet and opted for advice from foreign tax consultants who are engaged to overhaul the government internal revenue system.

In October last year, then NRI director Dr Thomas Webster revealed that personal income tax in PNG, which was among the highest in the world, was unjust, unfair and needed reviewing.

We said at the time that some people may disagree with the NRI’s views but did not expect Sir Nagora and his Tax Review Committee members to be among them. They decided to drop the bomb 10 months later.

The damage is likely to be huge but may not be enough to bring down the O’Neill Government immediately. Nonetheless, wage-earners will still have their say in the 2017 general elections.

It would be wise of the ruling coalition to reconsider the committee’s recommendations to increase the income tax threshold from K10,000 to K15,000 and the goods and services tax from 10 per cent to 15 per cent.

For the sake of wage-earners, we will quote excerpts from Dr Webster’s speech at the launching of the NRI report on taxation last October:

“The present state of taxation in this country is unjust and oppressive to the formal wage earning income earners.  The middle class are subject to very high income tax but they pay VAT through the goods that they purchase and they are dependent on those goods for a living.

“Personal income tax is one of the highest in the world, with the marginal tax at 42 per cent compared to the global average of 31 per cent.  And the average in Asia is about 28 per cent.

“Many advisers and tax consultants compare PNG’s tax regime with Australia and UK but we have different social and environmental circumstances.

“In PNG, wage earners pay tax as well as look after their wantoks and relatives for school fees, health and the aged.  

“In Australia and the UK, people pay tax and the government takes the tax money and looks after the relatives, those who don’t have enough income, etc.  

“In Papua New Guinea, we pay a high income tax similar level to Australia and UK and yet we take on the tax burden of looking after our wantoks and relatives.  And this is quite unjust and unfair.”

In essence, Webster said it all for struggling wage earners and urged the Government to consider reducing personal income tax.

The NRI report, which was specifically compiled for the Tax Review Committee, also recommended that the Government do away with tax incentives for companies.

The NRI argued that in exempting companies from paying taxes, there is a corresponding tax burden which is passed onto the already over-taxed wage earner. It also affects the non-wage earner struggling with a limited purchasing power.

“If Papua New Guinea is losing out on much needed revenue then the tax burden is unfairly passed onto the taxpayers because somebody else is not paying. We are therefore strongly recommending that these tax incentives should no long be offered in the future,” Webster said at the time. Unfortunately, the Tax Review Commission decided to discard the NRI’s recommendation, which could prove to be costly mistake for the Government.

PNG tax legislation may have been based on the Australian and British models but has scant regard for the social and economic realities in PNG, some of which were alluded to by the former NRI director.

Moreover, the ongoing misuse of public money and corruption at all levels of government raise skepticism about increased taxes. 

Wage earners are not only worried about how much they pay but also whether their taxes return to them in improved service delivery and quality of life. 

It is fair for them to ask for nothing less than prudent spending and strict accountability on the part of government.