Income tax remains a burden


TAXATION is a major concern for our people.
Every day, readers write in letters to express their displeasure at the taxation system in the country.
They call talkback radio to say how unfair the system is, how the few in the formal economy who are taxed through their income tax, are repeatedly taxed every time they pay for goods and services.
This is while the majority who are outside the cash economy demanding Government goods and services – essentially paid for by tax money – are not contributing to paying for what they demand.
It is a grossly unfair state where a disproportionate number of people are bearing the taxation burden for the majority of Papua New Guinea.
They claim, with much justification, that they pay income tax and then pay value-added or goods and services tax again when they pay for any goods or services.
The income tax burden falls on the few people employed in the formal sector while the GST on all consumers of goods and services.
The majority of people in the rural outback are not really daily consumers of goods and services, from sources where GST is deducted, so they are not brought into this broader taxation net.
It is back to those in the formal economy in mostly urban settings who pay the GST.
Yet, it is the rural majority which clamors loudest for Government services – which must be funded largely by tax money.
Papua New Guinea has always had this situation where a minority gets to pay for the majority.
This is quite unlike developed economies where the majority are employed and their tax money pays for the upkeep of the minority unemployed.
The Internal Revenue Commission has confirmed that there are 262,000 salaried workers out of the country’s eight million population.
Of that, between 60,000 and 70,000 are employed in the public sector.
PNG’s tax system is an important pillar of the social contract that exists between PNG’s Government and its people.
Consequently, all Papua New Guineans have an interest in how that system is designed and administered.
In PNG, the personal income tax Rate is a tax collected from individuals and is imposed on different sources of income like labour, pensions, interest and dividends.
In 2013, the O’Neill-Dion Government committed to comprehensively review PNG’s fiscal regime (both taxation and non-taxation revenues).
The primary reason for the review was to ensure that PNG’s revenue regime remained relevant, efficient and effective.
Government revenue is critical to fund essential services and infrastructure for PNG, share the benefits of prosperity across families, communities and regions and to lay the foundations for future growth.
Effective this year, the tax threshold has gone up from K10, 000 to K12,500.
People who have been in that bracket (K10,000-K12,500) last year will not pay any tax at all in 2019.
Lifting the exempt threshold always means exempting the majority of working class.
Either way, we still pay some form of tax.
Maybe tax the people less, so that with more money in their hands, the few in the formal economy can help rope in more people into the tax bracket through their enterprising and entrepreneurial skills.
This is the real crux of PNG’s revenue shortfall issues over the years and why it has become dependent on foreign aid for far longer than it should have.
This situation has to change.
As it is, less than one million people in the formal sector pay for the upkeep of the other eight million Papua New Guineans.