Support IRC’s move

IN light of the proposal by the Internal Revenue Commission (IRC) to redistribute and map-out goods and services tax (GST) in the country, I think similar emphasis should be given to other provinces and districts that contribute heavily to the national coffers.
Large-scale agricultural, mining, petroleum and tourism projects often bolster economic growth and generate huge tax revenues, however, they bring with them unprecedented development challenges in the district and provinces as well.
Most of these projects are located in rural areas.
These are often isolated areas that lack infrastructure and other services.
As such, private companies and the Government are often bombarded with unprecedented development challenges to meet the growing demand for goods and services, mitigate negative social and economic effects and drive sustainable business development activities.
Local communities often demand better infrastructure development and social benefits, including law and order, education, and healthcare as a price for the projects on their land.
The companies which are operating the large agricultural and resource projects have corporate social responsibilities to support critical social development needs in the communities they operate in.
On the other hand, the public finance mechanism is often untenable and public sector capacity is saturated, which makes it impossible for the Government to provide infrastructure development upon which the large economic projects will ride on.
However, in its endeavour to develop and rehabilitate infrastructures in the districts and provinces to help the private entities to efficiently deliver and operate critical projects, the Government has created the tax-credit scheme.
The tax-credit scheme is applicable to large corporate organisations in the mining, petroleum, agriculture, and other sectors whereby the IRC allocates negative tax at the rate of 4.75 percent as a proportion of the income tax paid.
The purpose of the tax-credit is for the private entity to self-fund infrastructure development on a needs basis, especially in the district and province where it operates and as a means to enhance its operations and the provision of corporate social responsibilities as well.
So far, the tax-credit scheme has helped fund critical infrastructure development in the country including public servants housing, airstrips, roads and bridges, hospitals, police stations, administration buildings and other infrastructure.
The funding activities of the tax-credit have bolstered the presence and business continuity of the private entities and generate windfall income tax to the State.
Despite the significant impact of the tax-credit scheme in the country, the previous O’Neill-Dion government decided to consolidate all tax-credits in 2014, which had caused increased uncertainties in the efforts to safeguard and consolidate the interests of the private entities, local communities and the local and provincial governments.
Previously, the tax-credit was in the hands of the private entities in the belief that the private entities can use the tax-credit to plug the untenable public finance mechanism and capacity saturation in the rural areas they operate in.
So far, the tax-credit has bolstered private-public-partnership in delivering critical infrastructure and other services in the rural areas of the country including in Telefomin in West Sepik, Bialla In West New Britain, Misima in Milne Bay, Kutubu in Southern Highlands, Tari in Hela and Kikori in Gulf.
The reason to consolidate the tax-credit by the Government is maybe to avoid abuse and bolster efficiency, transparency, and effectiveness in the use of the tax-credit, but it’s still unclear whether abuse has actually occurred or whether it’s just a political rhetoric to divert the use of tax-credit.
Perhaps, good governance is a prerequisite mechanism for the effective, efficient and transparent use of the tax-credit to ensure that vital infrastructure development and rehabilitation needs are continuously funded, and at the same time, social and economic development needs are enhanced, especially in the rural areas.
However, the only concern now is the abuse of tax-credit in the hands of the Government as development planning in Papua New Guinea often occur on an ad hoc basis and hugely politicised.
The Government should therefore avoid the use of the tax-credit funds to build big ticket items such as extravagant conference halls and sports stadiums which our rural population don’t need and use.
Most often, the Government collects taxes, but faces an untenable public finance mechanism and capacity saturation to fund infrastructure development needs, especially in the rural areas.
Support from the Government is often on a rather piecemeal basis, so the tax-credit is critically necessary to remove the capacity and funding bottleneck and to support large capital investments in the rural areas of the country.
In the same manner, the IRC commissioner-general’s decision to map out and redistribute GST in the country is helping to identify and give to the “hand that feeds” which is just and fair to all provinces.
This decision should bolster the debate over the consolidation of the tax-credit and other development support grants in the country as stated above.
In a twist, the West New Britain Government has opposed the Government’s efforts to consolidate the New Britain Palm Oil (NBPOL) tax-credit in the view that the action would disrupt and deprive its partnership with NBPOL in funding critical infrastructure development in oil palm growing communities in the province.
NBPOL has supported the provincial Government because it believed that its continued business operations depended on the effective use of the tax-credit to fund infrastructure development and enhance corporate social responsibility efforts in the communities where it operates.
In Hela and Southern Highlands, the consolidation of the Oil Search Ltd tax-credit and other government revenues under the Fiscal Consolidation and Management Act 2014 has left behind a lot of uncertainties. On the outset, the consolidation of the tax-credit is unfair and unequal as it will drain development capacity in regions where large agricultural and resource development occur.
Besides the normal budget allocations, the magnitude of the development needs in the mining, petroleum, agriculture or tourism-based provinces is often huge, which should not be easily undermined by arbitrary government decisions.
Hence, the respective provincial governments should partner the IRC to ensure that whatever funds, including the tax-credit, should remain at their own reach and necessary actions should be taken to rectify arbitrary government decisions.

Mike Haro