Taxation challenges for B’ville

Business

THE National Research Institute recently released “The challenges to tax revenue collection by the Autonomous Bougainville Government” paper. The focus was on the possible challenges in collection of tax revenue in Bougainville. If the people of Bougainville vote for independence, decisions would have to be made on whether to adopt the PNG current tax code or not (Hill & Fletcher, 2018). That means the future independent Bougainville government would have to make certain amendments to the legislations to suit its own needs if it decides to adopt the PNG tax laws. But if the Autonomous Region of Bougainville (AROB) decides to be part of PNG then it means that the AROB and the PNG governments will have to review the existing fiscal arrangements such as the one under the Bougainville Peace Agreement.
Below is an extract of the paper by Nelson Nema.

Challenges to collecting income and consumption taxes – Income Tax as major source of tax revenue in AROB.

The primary sources of direct or income taxation are individuals, through a personal income tax, and companies through a corporate income tax.
Since personal income taxes are generally administered through a wage withholding system where employers withhold part of employees’ wages and remit that amount to the tax administration, generally the administration of it would be straightforward and involve less complications (Carnahan, 2015).
There may be a few notable challenges faced by tax administration especially in cases of exemptions and deductions on certain individuals’ income.
At this stage, in the case of AROB, this may not be of great concern because of the small size of the economy where collection of individual income tax is not complex.
This may be the reason why taxes collected from individuals make up the largest share of total revenue collection in the AROB over the successive fiscal years, especially 2014, 2015 and 2016.
For instance in 2016, of the K20,716,002 total revenue collected, K19,403,000 (94 per cent) came from Group Tax.
For the time being, the ABG’s revenue strength is in that area, therefore, it may be a good place to start with for a future Bougainville government intending to build its tax base.
To do so, one immediate and possible way would be to encourage the growth of the local economy through the growth of small and medium enterprises (SMEs) to create employment. SMEs are the largest source of employment in the world (OECD, 2010).
PNG recently released a new SME policy with the fundamental aim of promoting and driving inclusive economic growth through employment and wealth creation (Nicholas, 2016).
Currently, PNG is a lower middle income country, however, the overall vision of the policy is that the SME sector would be a major contributor toward PNG becoming a middle income country by 2030 and a high-income country by 2050 and that includes Bougainville as well to this time.
As noted above, the Government and ABG’s strength of revenue collection lies in the area of Group Tax collection.
Therefore, SMEs would serve as a reliable option of growing the local economy through job creation and revenue generation through individuals’ income taxes.
However, the progress on the rollout of the SME policy by the Government to the ABG has been ineffective if not has seen very minimal progress to this stage.
A presentation done by Maken (2016) revealed that, under the policy set for each of the provinces, the target set for AROB is to achieve 14,950 SMEs by the end of 2030.
The statistics show that for other provinces there is existence of SMEs and there is progress in growth, however, AROB has no record of established SMEs and also no record of growth which poses a great challenge for the region.
Obviously the ABG enjoys access to a wider suite of policies than revenue and tax policies but a focus on these two will serve to highlight the causal linkages involved.
The success of revenue and tax policies would be marked by growth in the formal (ie. monetised) economy which in turn would contribute to broadening of the tax base (Chand, 2018).
There is a greater need for the investment climate to be conducive for generating economic growth and thus increasing the tax income and consumption tax bases by transforming the large informal sector gradually into formal registered businesses compatible for paying taxes.
A large level of informality has resulted in AROB economy being vulnerable with low levels of productivity thus low levels of business activities and job creation.
However, with the SME policy in place the ABG can opt for a better future in 2030 which would increase private investment and diversify the economy resulting in job creation in tourism and manufacturing sectors.
Since the economy of AROB is small and is export-driven it may benefit from its exports of especially primary products accessing increasingly higher value markets internationally.
The SMEs fit well to our definition of defining informal sectors in PNG as well as AROB.
One of a greater challenge currently faced by the Bougainville taxation office is its ability to collect information and registration of small and medium sized businesses operating in the region in order to capture them in the tax net.
This was revealed by the Bougainville Tax Office during the Revenue and Tax Summit.

One thought on “Taxation challenges for B’ville

  • They need to advance into Agricultural sector and sme sweeply like wise allowing foreign investments and other industries to boost their economy
    Furthermore, Their campaign into independence is deemed to be null and void, possibly the trend come their way with tax struggle is just a beginning of long journey.

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