Higher tax may mean job losses

THE PNG Forest Industries Association has slammed the Government’s harsh proposal to further increase the taxes on logging companies that will ultimately deprive the people of jobs and increase rural poverty.
It said the Government was treating the industry indiscriminately and many companies faced closure.
“This is the second time the Government has breached an agreement reached with the industry to limit export tax to 28.5 per cent of sales value,” chief executive Bob Tate said in a statement on Sunday in response to the 2020 Budget.
“The new rates of tax announced of up to 50 per cent are unsustainable and threaten the very survival of any forest industry in the country.”
He said the Government was currently receiving 35 per cent on export sales value, landowners 13 per cent and the National Forest Service and Conservation and Environment Protection Authority (Cepa) four per cent.
“This makes the total turnover taxes and levies 52 per cent of the gross industry income.
“This is the highest rate of tax on any industry in PNG,” he said, adding that if the Budget proposal was implemented, the new taxes would total 70 per cent.
“At this level, there is insufficient income to cover production costs, wages, fuel, machine and logistical costs. It can only be assumed that the Government is prepared to see and accept growing levels of rural unemployment, operational closures and a collapse in investment and rural development.”
Tate questioned the Treasurer’s stated budget objectives of job creation and employment growth and not to increase taxes.
“The aims of Vision 2050, which call for a sustainable and profitable forestry sector, appear to have been thrown out. This has been done with no stakeholder consultations whatsoever.”
Tate warned that the industry closure would be greatly felt by the rural communities where landowners currently receive about K160 million a year.
He said in most cases, this was the only source of income for the rural people.
“What income-producing opportunities does the Government propose for the people to replace this?
“And also, will the Government take over and maintain the rural hospitals and support aid posts, the schools, the rural airstrips and shipping services currently operated by industry?”
Tate said Treasury officials had “bravely” assumed that there would be a 10.5 per cent rise in export prices of tropical forest products next year.
He pointed out that current prices were weak and that China, the industry’s biggest export market, was being severely impacted by its trade war with the United States.
He said PNG’s exports to China had dropped 12 per cent so far this year,
“Last month, their government announced the closure of 270 sawmills.
“In the EU (European Union), a large end-user of tropical forest products, imports have fallen 52 per cent over the last decade.
“Against this market reality, how do Treasury justify their price increase assumption?”
Tate said Treasury had also again tried to use the old excuse of transfer pricing to justify its proposals.
He said the “baseless assumption” had long featured in the PNG forestry scene, going back nearly 20 years when Japan, not China, was the PNG industry’s largest export market.
“All previous studies into this subject have found no evidence to support transfer pricing claims.
“The landmark study commissioned and endorsed by the World Bank, concluded there is no evidence to support any claims of transfer pricing in any manner or form in the forest industry in PNG.”
Tate urged the Government to seriously reconsider its move to further raise the “already-oppressive tax rates” imposed on forestry.