Forest industry slams tax claims


THE PNG Forest Industries Association has strongly objected to the Government’s justification in imposing increased progressive taxes on log exports in the 2018 Budget.
The association, in a statement yesterday, said the government was justifying the tax increases by claiming that Papua New Guinea’s timber exporters used sophisticated techniques to avoid paying their share of taxes.
Association executive officer Bob Tate said the association strongly objected to this characterisation, which was baseless and has been repeatedly disproven in the past.
He said the government claimed that tax evasion took the form of “transfer pricing”, whereby commodity exporters under-declared the sales price they received for log exports in order to misrepresent profits and reduce company tax.
Tate explained that there were strict checks and balances in place to prevent this practice.
“Before selling logs to an overseas customer, an exporter must seek approval for the sale price from the marketing division of the PNG Forest Authority, which is required to verify the declared price against current global market rates,” Tate said.
“If PNGFA believe the price is underquoted, they have the right to acquire up to 20 per cent of log production and sell it themselves on the global market, pocketing the net proceeds.
“The authority does occasionally exercise this option, but has to date been unable to obtain significantly better prices than the exporter.
“Once PNGFA and the Minister for Forests have approved the export permit for the log sale, it is then sent to the export licensing officer in the trade division of the Department of Commerce and Industry.
“There the officer and the minister must also approve the terms of sale and issue the export licence.
“In effect, what the government is saying is that none of these departments are doing their job properly. We do not believe this is correct.
“In addition, the Internal Revenue Commission (IRC) has wide-ranging powers to investigate and prosecute cases of suspected transfer pricing in any industry.
“In the past 30 years, the IRC has not launched a single investigation into a forestry company.
“The issue of transfer pricing in PNG’s forestry sector was also the subject of a major World Bank investigation, as part of the bank’s intervention in the sector, which concluded that there was no evidence of transfer pricing in the industry.
“According to comments from Treasury officials and as set out in budget papers, PNG’s forestry sector has in recent years contributed more tax revenue than all of the nation’s mining and resources projects combined.
“This is because forestry is the only industry that faces an export tax based on gross sales revenue, currently 32 per cent. Log exports generate significant revenue flows for the government, even in times of poor commodity prices, because 32 toea of every kina received is collected as export tax.
“Compare this to the Ok Tedi project – the so-called pot of gold – which paid zero tax for its first 10 years of operation and only paid tax on profits, not gross revenue thereafter.
“The forestry industry has shrunk by as much as 20 per cent this year, due to low sales prices and the export tax increase introduced in February. The additional increases announced this week amount to an attempt to squeeze more out of the industry that the government apparently sees as a never ending cash cow.”