Time to tackle illegal businesses

 TAXPAYERS in Papua New Guinea are seemingly footing the bill for illegal businesses and tax cheats.

The revelation by the Tax­ation Review Committee that PNG has become a paradise for illegal businesses to operate without paying taxes is a big slap in the face for companies and employees who work hard to contribute to the government coffers. 

Committee member Sir John Luke Critin, who described the illegal business operations as a “huge black economy”, claimed that it involved money laundering.

This shocking revelation will no doubt dampen the Christmas cheer among many companies that have slogged all year to keep their businesses afloat and pay their taxes to the State. 

By the same token, thousands of workers will feel cheated by a government system that forces them to pay taxes but does nothing to prevent unscrupulous people from evading taxes. 

It is not fair that genuine employers and employees in the public and private sectors have to earn their keep and pay their dues while tax cheats continue to thrive.

According to Sir John, these businesses evade taxes simply because they are not registered. “They’re not in our books and they bypass the system.”

So who is responsible for the failure to detect unregistered or illegal businesses? Is it the Investment Promotion Authority (IPA) or the Internal Revenue Commission (IRC)?

The Investment Promotion Authority, through the Companies Office, is responsible for the administration of Papua New Guinea’s key business laws such as the Companies Act, Business Names Act, Business Groups Incorporation Act and the Associations Incorporation Act.

There are other laws and regulations which will affect investors. These include laws on areas such foreign exchange, taxation and customs, licenses and permits for activities such as mining and petroleum exploration, agriculture, fisheries, forestry and industrial activities.

Provincial governments and urban authorities issue various licenses. It is the res­ponsibility of investors to ensure they comply with the respective laws as well as the Investment Promotion Act 1992.

The Companies Office maintains a national registry of all companies, associations, business groups and business names in PNG. 

Failure to comply with the legislations administered by the Companies Office may result in administrative penalties or prosecutions that may follow jail sentences or fines or both against company officials and the company. The latter can only be fined. The company can be de-registered. The nature of penalty, whether administrative or others, and deregistration of a company depends on the severity of the offences.

The IPA can only deal with legal businesses that fail to comply with key business laws such as the Companies Act. 

On the other hand, the IRC is responsible for collecting revenue for the State. 

The IRC imposes taxes on legal businesses that are registered by the IPA and can only deal with infringements of the taxation laws by these companies.

The issue of tax evasion by illegal businesses or unregistered companies is the grey area that needs to be investigated and dealt with by relevant government authorities, including the IPA and IRC. 

As Sir John said, “We’re losing billions every year. It’s not what hasn’t been collected, it’s what has escaped.” It’s encouraging to note that the Taxation Review Committee will make recommendations to the Government to identify those illegal businesses not paying taxes and generate extra revenue from that. The committee, headed by Sir Nagora Bogen, plans to modernise the PNG taxation system by streamlining and rationalising the current tax and revenue administration. They intend to embrace the use of information technology to speed up the process and assist in the assessment of taxes.

All of these sound swell but taxpayers throughout the country will hope that the committee sticks to Sir John’s assurance that it will not raise taxes but find ways to decrease or eliminate taxes for people earning K1,000 or less per fortnight.

Indeed, that would be a blessing for many genuine workers and their families.

As it is, ordinary wage earners are heavily burdened by all sorts of taxes and the current review will be a pointless exercise if it were to take more out of their pockets.