IRC explains taxation policy

THE Government heavily relies on taxes as its main source of revenue, ensuring that the compliance and collection systems are effective and efficient. The taxation policy factors into the operations of businesses and the government capacity to provide for its constituents. Business reporter MARK HAIHUIE discussed with Internal Revenue Commission Commissioner-General BETTY PALASO some aspects of taxation in the country.
 
HAIHUIE: Can you give an overview on how the taxation policy is set for PNG and the IRC’s role?
PALASO: The IRC’s role is to administer the tax laws as set by Treasury and to collect tax revenue. The Treasurer has ministerial responsibility for the IRC as the regulator or administrator of the tax laws.  The formulation of PNG’s tax law and policy is a mandated function of the Department of Treasury guided by policy directions from the Government.  Treasury has an Economic Policy Division that specifically looks at tax policy and revenue forecasting annually.  They engage with the Government, and the private sector, to look at proposals for policy and legislative changes.  They consult with IRC to get an administrative, tax technical and revenue perspective of each proposal – that is, compliance and revenue statistics etc. The IRC, which has in-house tax lawyers, drafts legislative changes to proposals Treasury wants to pursue – according to instructions by Treasury. Most tax policy changes are done during the budget sitting of Parliament.
HAIHUIE: The Government has emphasised tax collections in the 2017 budget. What are the initiatives undertaken by the IRC to maximise tax collections? What is the operational capacity of the IRC towards this?
PALASO: The IRC has focused on non-lodgment and payment compliance activities as one of the initiatives under the Revenue Raising Initiatives Project.   Also under this project, IRC has successfully conducted compliance activities to ensure businesses are meeting their tax obligations. A variety of business sectors have been, and will continue to be, targeted during these activities. Plans are also underway to employ additional staff on short term contracts to assist with enforcement activities. IRC is also taking firmer enforcement action to enforce payment and compliance through the issuance of Garnishee Notices, Director Penalty Notices and Departure Prohibition Orders which prevent directors of companies who fail to make timely payments of salary and wages tax, or taxpayers who fail to make income tax payments from leaving PNG until their tax affairs are in order. To recover tax arrears from serially non-compliant taxpayers, there are plans to enforce payment through compulsory company liquidation.
Another initiative is the rollout of SIGTAS (Standard Integrated Government Tax Administration System) to IRC’s regional centres where the registration for Taxpayer Identification Number (TIN) and payment of taxes can be made rather than forwarding payments to Port Moresby for administration. The IRC recently opened its Kokopo and Lae tax processing centres with plans to progressively open others around the country.
HAIHUIE: There have been several recommendations by the 2015 tax review committee. How has the IRC progressed their implementation?
PALASO: The IRC was actively involved with the tax review work by having one of the staff on the team. So the IRC is well aware of the recommendations and has looked at the various implementation scenarios of each recommendation.  However the ultimate decision as to what recommendation to implement and when to implement it, lies with Treasury as the tax policy maker.  The IRC will facilitate any implementation as and when requested by Treasury. In the meantime, IRC is continuing its transformation into a modern tax administration, in accordance with the 2013-17 Corporate Plan. It is coincidentally consistent with the intent of the 2015 Tax Review recommendations relating to revenue administration.
HAIHUIE: Taxpayers are allowed to submit tax returns for the year and claim rebates where possible and is a common practice globally. What does this involve and to what level has this been practised in PNG?
PALASO: Salary and wages earners are required to lodge annual income tax returns – the expenses incurred with the original receipts and statement of earnings. Under the Income Tax Act, taxpayers can lodge and claim rebates on school fees paid for dependent children, election expenses, gifts to political parties, charitable organisations etc. Most rebate claimed is for school fees paid. To claim the rebate, the salary and wage earner must obtain a taxpayer identification number(TIN) by completing a TIN application which can be lodged at IRC offices at Era Rumana, Port Moresby, Kokopo and Lae tax centres to obtain a TIN to enable lodgement of the income tax return form. Where the taxpayer has a tax file number (TFN), a request for conversion to TIN must be made. For current levels, based on data, the rebates lodged are mainly for schools fees.
HAIHUIE: What is the progress in your expansion to other centres around the country?
PALASO: To improve service delivery and to reduce taxpayer compliance costs, IRC has plans to increase its presence throughout the country by creating regional tax processing centres. They process tax returns, handle Taxpayer Identification Numbers (TIN) applications, issue certificates of compliance and receipt tax payments. Decentralisation has been enabled through the implementation of a new accounting system, SIGTAS, allowing the processing of tax data remotely from Port Moresby.
HAIHUIE: What are some of the operational impediments faced by the IRC?
PALASO: Funding has been the biggest challenge and this is the subject of ongoing discussions with our strategic partners and stakeholders who are responsible for budget formulation and appropriation. As identified in the 2015 Tax Review, IRC has been consistently underfunded in the past resulting in it being chronically under-staffed and under-resourced, therefore unable to collect taxes to legislated levels.
HAIHUIE: Can you give an overview on tax concession arrangements allowed by the government with certain companies in the extractive sector?
PALASO: PNG offers a number of tax incentives which new and existing investors may wish to take advantage of. The incentives for mining and petroleum projects covers double deduction of exploration expenses for mining operations, infrastructure tax credit schemes, loss carry forward indefinitely, pooling of exploration expenditure and an incentive rate for petroleum operations.  This incentive is at a rate of 30 per cent, applicable to petroleum operations arising out of a petroleum prospecting license (PPL) granted between January 1, 2003 and December 31, 2007 and from which a petroleum development license was granted on or before December 31 2017.
HAIHUIE: How important is inter-government cooperation for the IRC to carry out its functions and what more can be done to enhance current arrangements?
PALASO: IRC requires inter-government co-operation in order to effectively and efficiently carry out enforcement and compliance activities. Information held by agencies such as the Department of Foreign Affairs and Trade, PNG Customs, Labour Department, Immigration, Department of Lands, MVIL, police, Band of PNG, and Justice is crucial to enable the IRC to fairly assess tax and catch tax evaders and non-compliers.  Commercial banks and financial institutions are also providing data to support IRC’s operations. It is essential that shared information is used to create a level playing field for all taxpayers, to ensure all are paying their fair share of taxes and to be prosecuted if not. As an example, IRC is working with the Investment Promotion Authority to keep track of the businesses operating in PNG to ensure that they are complying with their tax obligations. In addition, IRC has entered into memoranda of understanding for the purpose of enhancement of tax revenue collection in the provinces with a number of provincial governments, the latest being Morobe. PNG has international tax obligations with respect to the exchange of tax information. IRC is developing relationships with international administrations to service these obligations. These too will require effective and efficient co-operation between domestic stakeholders.
HAIHUIE: From the IRC’s view, does the lack of regulation for the real estate market in PNG affect taxable revenue for the government and in what ways can this be addressed?
PALASO: Most of the big players in the real estate industry have done the correct thing in paying the applicable taxes such as stamp duty to formalise the leasing or conveyance agreements and income tax on their profits from their rental business. But it is the unregulated informal rental sector that has largely been non-compliant. IRC continues to ensure that employees receiving rental allowance, and using the allowance to rent a home or a place to live, will not have their application for housing allowance variation assessed unless the landlord is registered with IRC and has a Taxpayer Identification Number. In addition, stamp duty must be paid on any lease agreement entered.  This initiative has resulted in income tax liabilities being raised through default assessments with some landlords coming forward to correct their tax affairs.