Implement better GST regime

PAPUA New Guinea (PNG) faces numerous challenges in developing a robust and diversified economy.
Downstream processing, which involves value addition to raw materials and export-oriented industries, plays a crucial role in creating employment opportunities and driving economic growth.
In this, I will analyse how the current value-added tax (VAT) regime in PNG is inadequate and discuss why implementing a goods and services tax (GST) regime is a more suitable approach for promoting downstream processing in the country’s economy.
The limitations of Value Added Tax (VAT) regime include the cascading effect, creates complexity and favouring imports over local production.
Cascading Effect: The VAT regime in PNG imposes taxes at each stage of production and distribution. This cascading effect results in multiple layers of taxation, increasing the overall tax burden.
As downstream processing involves several stages of value addition, each attracting VAT, the cumulative effect is a significant tax burden that hinders profitability and competitiveness for downstream industries.
This discourages investment and limits the growth potential of these industries.
Creates Complexity: The complexity of the VAT regime poses a significant challenge for downstream processors in PNG.
Complying with multiple layers of taxation, maintaining accurate records, and dealing with administrative burdens diverts resources and time away from core business activities.
This complexity discourages small and medium-sized businesses from engaging in downstream processing, further hindering economic growth and the creation of employment opportunities.
Favouring Imports over Local Production: VAT is imposed on imports at the point of entry into the country, creating an uneven playing field for local producers. Imported finished goods already include taxes paid in their respective countries, while local producers are burdened with incremental VAT costs.
This disparity makes locally manufactured goods less competitive, discouraging downstream processing and hindering the development of domestic industries.
There are also advantages of Goods and Services Tax (GST) regime in promoting downstream processing
Enhances Competitiveness: A GST regime, unlike VAT, would eliminate the cascading effect of taxation.
By allowing businesses to claim input tax credits on their purchases, GST promotes competitiveness for downstream processors.
This would reduce the tax burden on each stage of production and distribution, making downstream industries more competitive domestically and internationally. Increased competitiveness would encourage investment and foster the growth of downstream processing industries, thereby boosting economic development.
Simplifies Taxation: GST is a simpler and more straightforward tax system compared to VAT.
Its implementation reduces the administrative burden associated with multiple layers of taxation.
By eliminating the need for businesses to calculate and track VAT at each stage, downstream processors can focus on improving productivity and efficiency.
Simplified taxation processes encourage investment and create a conducive environment for downstream processing to thrive.
Encourages Local Production: Implementing a GST regime would level the playing field between locally produced goods and imports.
By ensuring that both domestic producers and importers pay the same tax rate, GST promotes local production and supports downstream processing industries.
This encourages investment in local industries, stimulates economic growth, and creates employment opportunities throughout the value chain.
As PNG aims to diversify its economy and promote downstream processing, it is crucial to create a taxation regime that supports the growth and development of these industries.
The current VAT regime presents limitations such as the cascading effect, complexity, and favoring imports over local production.
Adopting a GST regime would address these constraints by enhancing competitiveness, simplifying taxation, and encouraging domestic production.
Implementing a GST regime is a progressive step towards creating a conducive environment for downstream processing and fostering economic growth in PNG.

Elijah Kunjil
Laloki Secondary