Taxation review is timely

TAXATION is a major concern with our people. Everyday our people write in letters to express their displeasure at the taxation regime in the country.
They call on radio talk back to say how unfair the system is, how the few in the formal economy not only pay income tax but also goods and services tax while the majority who are outside the cash economy who demand government goods and services – essentially paid for by tax money – are not paying for what they demand.
It is a grossly unfair state where a disproportionate num­ber of people are bearing the taxation burden for the majority of Papua New Gui­neans.
The income tax burden falls on those employed in the formal sector while the VAT or goods and services tax falls on all consumers of goods and services.
But the majority of people in the rural outback are not really daily consumers of goods and services from sources where VAT is deducted so they are not brought in­to this broader taxation net. It is back to those in the formal economy in mostly urban settings who pay the goods and services tax.
Yet it is the rural majority which clamours loudest for government services, servi­ces which must be funded largely by tax money.
So PNG has always had an untenable situation where a minority gets to pay for the majority. This is quite unlike developed economies where the majority are employed and so their tax money pays for the upkeep of the minori­ty unemployed.
Therefore we receive with more than passing interest Treasurer Don Polye’s just an­nounced review of the taxa­tion regime as we have it today. We are glad to note that it is a sweeping review covering the entire taxation regime in PNG.
We are pleased too to note the high profile names on the review panel. People such as former chief tax commissioners Sir Nagora Bogan, David Sode, a principal architect in John Loberger and former Australian treasurer Peter Costello will, we are certain, give this very important area the kind of close scrutiny it deserves.
This is a time of plenty. The government’s coffers are filling up and there is more to come. There is no need to tax the living daylights out of the people. Our position is for this review to move towards lowering the tax rate across the board, in particular, income tax.
There has been a tendency in the past to increase the threshold for low income earners thereby leaving those who earn less to take home more money. This is a political and populist strategy that in the final analysis does not do much good for the economy except hurt it.
This is because lifting the exempt threshold always means exempting the majori­ty of working class. There are fewer in the upper bracket and so the government has to tax these fewer people and corporations a lot more money. If this continues, there will be a point at which the government cannot tax any further and it cannot do an about turn and start taxing people it has exempted without digging itself a grave. It will have painted itself into a corner.
Tax the people less so that with more money in their hands, the few in the formal economy can help rope in more people into the tax bracket through their enterprising and entrepreneurial skills.
Up to now, the people’s entire approach to government and governance issue is thwarted when they do not contribute anything for the upkeep of the government and by extension for their own upkeep.
This feeds the cargo cultist hand-out mentality where the people feel that the government must always come with goods without realising that they have a responsibility to contribute as well.
This situation has to change. As it is, fewer than one million people in the formal sector pay for the upkeep of the other six million Papua New Guineans.
This is the real crux of our revenue shortfall issue and why it has become dependent on foreign aid for far longer than it should have.
However politically unpalatable it might be, the government has to rethink the taxation issue with a view to drawing everybody in the country into the taxation bracket.
Everyone must be held responsible for the servi­ce needs of the community. If a person cannot pay tax, he or she can be made to pay for it with labour.