Tax losses will hit Budget 2022

INSTITUTIONS and individuals directly dependent on Government funding will likely be in for grim news in the 2022 National Budget which will be handed down next month.
In reality, however, shortfalls in revenue will affect everyone.
The Coronavirus (Covid-19) pandemic’s impact on a small economy like Papua New Guinea and many other countries of similar economic status is going to be a lot worse off than bigger economies who can absorb the shocks well in the short term.
As far as employment is concerned, the first to feel the pinch of the pandemic locally was small to medium enterprises when the Government’s containment measures came into effect.
The private sector has had to lay off workers.
Job losses impacted individuals and their families the most, but the loss of employment also resulted in lost taxes to the State.
Personal income tax, which has been the subject of some debate of late, remains the Government’s biggest source of revenue.
None less than the prime minister is worried that any reduction in personal income tax will have a significant impact on the State’s revenue collection and annual budget allocations for development projects as well as recurrent expenditures such as public service salaries and wages.
In the private sector, employment has substantially declined according to the data the Internal Revenue Commission (IRC) collects on a monthly basis, from employer filings and the salary and wages tax.
Any significant decline in personal income tax revenue through job losses is therefore a concern to the Government.

This week, IRC reported a substantial drop in employment in the private sector reflected in the past months by a reduction in the salary and wages tax.
The trend will most likely continue into the final weeks of this financial year and this will be reflected in the 2022 budget figures.
The IRC says while the private sector had to let go off employees due to the impacts of the pandemic, the Government on the other hand, has been generous in retaining all staff.
This means they are still being paid out of whatever little money has been flowing into the State coffers, whether in taxes or other forms of revenue.
It is a little worrying that unlike in the private sector where salaries and wages are paid in proportion to the actual work output, in the public service, it is not so clear cut.
In the words of the IRC commissioner-general, the Government may be paying for unproductivity.
In some cases, public service salaries and wages are commensurate with labour provided, but sometimes, they are not.
In the current pandemic when some sectors of government service delivery are drastically scaled down, this could lead to workers being paid for doing practically nothing – not by choice in fact.
If the current trends in the face of the global pandemic continue, it may be a matter of time before the State and its agencies would also effect job cuts like the private sector.
That will obviously cause many hardships for families and further reduce tax revenue also.
That is something no government would want happening for a long time.
In other parts of the world, losses of income have affected families very badly, but PNG is quite fortunate that a large part of its population is rural-based and not heavily dependent on cash incomes just as yet.
No one knows when the world will come out of pandemic and get on the road to recovery.
One can only wish it ends soon rather than later.