Rise in tax threshold ‘reduces burden’


TAX free threshold rose from K10,000 to K12,500, and the threshold for the next tier, that pays a 22 per cent rate of tax, rose from K18,000 to 20,000 from January 1.
According to economist and Institute of National Affairs executive director Paul Barker, pictured, these adjustments remove or reduce the taxation burden particularly for some lower income earners.
Commenting on the recent debate on tax, Barker said: “Notably those earning between K10,000 and K12,500 who weren’t already exempt, and for those below K20,000.
“For any earnings above K20,000 the tax rates remain as before, rising to 40 per cent on marginal incomes above K70,000 and 42 per cent for those few earning above K250,000.
“These 40 per cent and 42 per cent top marginal rates were already in place before the 2019 Budget.
“There were some expectations that to reduce the ongoing budget deficit, including to make up the reduction in revenue from this modest tax concession, the government would impose an increase in the rate of GST above the current 10 per cent.
“This didn’t occur, partly no doubt as the cost of living has already been rising, partly as a result of the ongoing fall of the kina against the US dollar and other currencies.
“It’s true that personal taxes have provided by far the bulk of revenue to the Government over recent years. Particularly with the decline of tax revenue from the resource sector over the past decade.
“This burden falls on a relatively small portion of the population that is employed in the formal sector.
“Most of the population gains its livelihood on their own land, in semi-subsistence agriculture, with various cash crops, or in the urban informal economy, not contributing income tax although paying some GST, which now forms the second largest source of Government revenue on goods and services they buy.
“There are also extensive unregulated business which should be in the formal sector and should be paying company tax and GST, but are largely avoiding their responsibilities, or only paying a fraction of what they should. Personal income tax rates, particularly for middle to higher income are certainly quite high by global standards.
“Considering that by the standards and with the weak kina, K70,000 cannot be deemed a high salary.
“The cost of living is certainly very high in PNG, particularly in cities like NCD, which is far removed from the steady supply of affordable, domestically-grown staple crops and fresh produce, and where rental costs are high, even in the settlements.
“Increases in import tariffs on food items, as included in the 2019 Budget, invariably push prices up, not just for the imported product, but also for domestically supplied substitute, by effectively allowing to operate with less price competition.
“Generally, it’s preferable to keep tariffs low and keep trade open for the benefit of consumers, especially for any items which are staple foods, upon which lower income earners, particularly depend.
“It’s also preferable to have general tariff rates across a wide range of traded items, rather than hand pickings specific items for protection.
“Most of the items which have tariff increases are not critical food items.
“But some, such as tinned fish, do provide an important source of protein and make up a significant expenditure component of household expenditure, so pushing up these costs can have negative household economic and welfare impacts.”

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