ON Sept 27, 2002 a three-man Supreme Court bench ruled that the value-added tax introduced in 1999 was invalid and of no effect.
It was illegal and found to be “harsh and oppressive” to the majority of Papua New Guineans who had no permanent cash income.
The Morobe provincial government’s contention that it was illegal and harsh and oppressive to the majority of Papua New Guineans who had no permanent cash income was held to be correct.
Five days later, Morobe Governor Luther Wenge declared the decision “a victory for the people” and promptly declared a holiday in Morobe on Oct 2.
An unprepared National Government was sent back-pedalling. Since the imposition of VAT in January 1999, the Government had collected K1.25 billion.
The decision, whose effect was made retrospective to the imposition of the VAT, meant all that money had to be returned.
That created an impossible situation.
Quite aside from the fact that the money had been spent, there was no way of identifying every person who had been charged VAT.
Another problem arose. A company could continue to charge VAT because it was already factored into its pricing but it was under no obligation to turn over the money to the Internal Revenue Commission.
The IRC warned of a K150 million shortfall in the budget for that year.
Australia’s Export Finance Insurance Corporation predicted that the loss of VAT would “spark a public crisis” and that the Government would come under “tremendous pressure to borrow from commercial banks, the public and the Central Bank” to make up for the shortfall.
To recall Parliament and rescind the law would have taken time.
The Government went back to court and applied a stay on its decision because of the looming crisis.
In the end, the Morobe
governor himself supplied the answer by proposing to meet with the Government and discuss a possible solution.
All he wanted, he told the Prime Minister, was to restore some measure of financial autonomy to the provinces in the area of revenue raising as was previously the case.
That, after all, had been the theme of the provincial government reforms, he said.
The Government agreed and a Goods and Services Tax (GST), under which provincial governments could raise their own taxes, was the result.
The VAT was to be replaced by the GST on July 1 the following year and this is what happened.
But this political decision has not resolved the legal problem.
The VAT has been held by the Supreme Court to be unconstitutional.
The GST, which replaced it is a political compromise follows exactly the same principles set out under VAT.
If that be the case, then it must follow that the GST too is illegal and “harsh and oppressive”.
Political compromise does not amount to law.
The VAT must be amended by Parliament.
If GST is to replace VAT, that too must be the decision of Parliament.
As Mr Wenge said at the time: “The people’s Parliament made a decision that was not supported by the Constitution and which was found by the Supreme Court to be harsh and oppressive to the majority of people.”
Then, rightly the people’s Parliament is the only body that can reintroduce a new taxation regime.
We are yet to be told whether or not the GST is legal given that the VAT was found to be illegal.
Now the same Mr Wenge is talking about relaxing his stance on the recruitment of Australian Federal Police under a revised Enhanced Cooperation Programme (ECP) arrangement.
We should like to sound a warning that the Supreme Court has found the previous ECP to be illegal under the Constitution and it was none other than Mr Wenge who brought this matter to court.
Whether he has had a change of heart or not, it is incumbent upon the Government to realise that nothing it can do must impinge upon or breach the Constitution as the previous one did.