Log tax big risk

The PNG Forest Industries Association (PNGFIA) is extremely concerned about proposed changes to the log export tax announced in the 2017 Budget last Tuesday.
The association’s executive officer Bob Tate said if put into effect, these changes would put at risk a major national industry, greatly reduce government revenue and foreign exchange earnings, which exceeded K1 billion last year, and could result in as many as 15,000 Papua New Guineans losing their jobs.
“The average FOB (free on board –  indicates whether the seller or the buyer has liability for goods that are damaged or destroyed during shipment) sales price for exports of logs from PNG is US$96 (about) K296 per cubic metre (m3),” Tate said.
The current tax rate for exports of round logs is 28.5 per cent of FOB value.
On top of this, timber exporters pay royalties and development levies to landowners that total about US$12 (K38) per cubic metre as well as corporate tax on any profits. As a result, profit margins for forestry operators are thin, he said.
The proposed changes would effectively increase the tax on exported logs from 28.5 per cent to 43 per cent and as much as 90 per cent if export markets and commodity prices recover in the future.
These rates of tax are unsustainable and will result in widespread industry closure.
“Under the Budget-proposed rates, taxes paid by the forest industry will increase by over 50 per cent and returns to the operators to cover all operating costs will fall by 25 per cent,” Tate said.
“This will result in large parts of PNG’s forestry sector becoming non-viable. As a result, tens of thousands of families would lose their royalty incomes, hundreds of communities would lose aid posts, school facilities, roads and bridges that are paid for by forestry operators, and the 15,000 Papua New Guinean forestry workers would risk losing their jobs.
“The industry would ask why it has been singled out for such harsh treatment in the Budget compared to other sectors of the economy.
“The Forest Industry Association estimates that for every job created directly by the forestry industry, another 1.7 indirect jobs are created.
“For example, additional transport operators, retail staff and banking clerks who are hired to provide services to the people who are employed in the forestry sector. Therefore, the proposed increase in export taxes puts at risk more than 40,000 jobs.”
Export taxes are viewed by most economists to be a poor economic policy as they create a disincentive for national producers to export goods.
“If PNG is to improve the state of its economy, it would be advisable to reduce or abandon completely the export tax applied to round logs – any substantial increase would be disastrous,” Tate said.
He said the proposed bill – which for high-value timber would more than double the rate of export tax – would have the opposite of its intended effect.
Forestry operators would abandon most forestry concessions in PNG, timber-harvesting rates would collapse, the Government would receive less export tax revenue, tens of thousands would lose their jobs and hundreds of thousands of Papua New Guineans would lose their royalty incomes.
“The PNGFIA strenuously objects to this proposed Bill,” Tate said.