Undoing the tax credit puzzle


THE purpose of the revised Infrastructure Tax Credit Scheme (ITCS) guideline is to guide its implementation in Papua New Guinea.
The guideline was launched last week by Prime Minister Peter O’Neill and National Planning Minister Richard Maru.
O’Neill said the changes would see an increase from 0.75 per cent to 2 per cent.
According to the guideline, the modification of ITCS was that the carry-forward of unused credit would remain for the current and future years.
The two-year carry-forward is the time limit in which credits are available to the developers to utilise.
Projects will be approved and submitted by districts and provinces according to their respective development plans, taking into account the projects identified under the medium-term development plan 3, Five-Year Investment Plan, and other sectorial plans.
Any given approvals will be done according to the credits available to the developers.
The ITCS rates include:

  • Extractive industry (including the PNG LNG Project) – 2 per cent; and
  • Primary industry – 2 per cent.

Where an eligible taxpayer would have been, on January 1, 2014, entitled to expend additional amount under an approved national infrastructure project under the provisions of section 219 C (5A) as they were in force prior to that date, those provisions shall continue to apply to such eligible taxpayer.
All projects are subject to the public procurement process, through the National Procurement Commission.
An example of the application of S219C tax credit provision:

  • ABC Company is a petroleum company and commenced production in 2012.

Gross sales revenue for that year was K100 million.
Amount that can be spent on tax credit projects under s219C (2) is K100 million x 2 per cent = K2 million.
If this amount is not utilised in 2012, then ABC can use it the following year in addition to the 2 per cent for that year.
The credit for 2012 must be used before the end of 2014, otherwise it expires.
If ABC has spent the K2 million in 2012, then K2 million is then deemed as tax paid.
ABC Financial – 2012
Oil sales revenue – K100 million
Less: expenses – K50 million
Profit – K50 million
Tax at 45 per cent – K22. 5 million
Less: S219C credit – K2 million
Net tax payable to Internal Revenue Commission – K20.5 million
219C tax credit allowed in one year is the lesser of 2 per cent of accessable income or the amount of tax payable.
That is K2 million (2 per cent of assessable income); or K22.5 million (amount of tax payable)

  • No assessable income = no eligible credits
  • The amount expended is carried forward until fully utilised as an offset against income tax liability.
  • S219C credit are not refundable.

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