Informal sector needs taxation guidelines to be effective: IRC

THE country’s informal sector could be properly taxed if guidelines and policies were in place, according to the Internal Revenue Commission (IRC).
Speaking during a public discussion at the University of Papua New Guinea (UPNG) last Thursday, acting commissioner for taxation Pauline Bre said the country’s tax structure was based on the formal sector so it was difficult to tax proceeds from business activities in the informal sector.
“Unless it is regulated properly and supported with clear policy, rules and framework around how we can appropriately tax the informal sector,” she said.
“Currently, the taxation system that we administer in the IRC applies to companies that are registered with the Investment Promotion Authority (IPA) and are also required by law to register with us (IRC).
“We collect tax from their business activities from the profits by a set of rules that requires them to file and lodge regularly.
“We also collect consumption taxes which is formed by everyone (consumers),” Bre said. “And I agree with Governor (East Sepik) Allan Bird to extend the small tax base that we have. We need to be improving the consumption tax which is the GST (goods and services tax) because a lot of us consume goods and services.
“And also make sure that we buy our goods and services from businesses that are registered.”
Bird said East Sepik government was looking at ways to bring more people in from the informal sector in order that they could start paying some tax. If we can tease the taxes out of people without it being too painful perhaps using indirect taxes like GST, exploring that a little bit more,” Bird said.
“I think that’s a fairer method of taxation as opposed to directly taxing the workers who might only comprise of maybe 10 per cent of tax base.”
Meanwhile, visiting political economist professor Mick Moore said it was dangerous to say that the problem was not taxing the informal sector.
“That could be quite dangerous,” Moore said. “Because it depends on what you mean by the informal sector. If you just mean the poor people trying to scrape a livelihood together, why do we want to or not want to tax them?
“From a tax point of view, we don’t know where they are.”
He said the relative lack of tax collection in the country was not because IRC had a lack of number of people registered with them.
“The IRC has an enormous number of tax payers registered on its books.
“Only a tiny proportion of them ever actually pay tax in any year.”