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IRC Exec Defends Tax Holidays

by Patrick Paniwa Sakal & Gynnie Kero

TAX concessions for mining, oil and gas were given under the tax law, a well-placed source in Internal Revenue Commission said.

The source said the companies had been given able time to extract resources and that was what they were obliged to under the  income tax law.
He said this following a report in The National on Monday in which ADB country economist Aaron Batten said generous tax concessions given to mining, oil and gas companies were contributing to low government revenue per capita.
The source said mining companies being given time for construction was  the major reason the average effective tax on PNG’s mining, oil and gas companies was on the low side of fiscal regimes across the world,  as stated by Batten.

“The recently-opened Ramu nickel and cobalt mine has a 10-year tax holiday before it will contribute to national revenue,” Batten said.

 

“Many other similarly-beneficial concessions have been made to firms across the sector.”

The source said the companies also needed time to extract, produce, export and sell their products before generating a continuous income to pay tax.
The source cited the case of Exxon Mobil’s LNG project and that of other mining and petroleum companies, which he said were covered under the tax concession law until they started selling their products.
He said IRC should start taxing the LNG project in 2014 when it ships its first export.
Meantime, PNG’s economy is forecast to slow down over the next three years and the impact the tax regime may have on this slowdown is unknown at this stage, according to PricewaterhouseCoopers senior manager Paul Previtera.
He said this was more likely to come from external factors such as global economic climate. 

“There has been little change to PNG’s tax regime over the past two years,” Previtera said.
“PNG’s corporate tax rate of 30% is relatively high compared with many countries in the region.
 “It is difficult to comment on how ‘good or bad’ PNG’s tax regime is.
“Concerns are being raised regarding PNG’s competitiveness in attracting foreign capital and the rate may be reduced if this continues at some point in the future.”

He said the government’s job was to ensure there was a balance whereby it could collect as much tax as it could without discouraging business activity in PNG.
In the mid 1990s, there was a significant fall in investment in PNG because of the high tax rates being imposed. 

In the late 1990s and early 2000s, significant changes were made to the tax regime, which saw an increase in investment, particularly in resources.
Previtera said the IRC was also in the process of implementing a new computerised system which would allow it to process payments and refunds to taxpayers more quickly.

Comments

At Independence, when the Government was more independent of the goodwill of the major resource companies, they obtained the services of Steven Zorn as advisor. His advice was greeted with extreme pain by the developers of Bougainville Copper, Super Tax etc. The government took his advice and entered into a mutually satisfactory relationship with CRA. The fact that they failed dismally to follow up with re-negotiations for 21 years, substantially leading to the Bougainville conflict, does not cancel the worth of Steven Zorn's excellent advice. It merely sets the stage for our various governments failing to obtain adequate advice, apparently feeling that people such as the writer of the article are fit to go head to head with world class operators. They are as able to compete successfully with the world’s best as are our Olympic contenders. Olympians will gain valuable experience. Unfortunately our top contenders/negotiators for resource benefits do not only gain experience for a limited expenditure, they also risk the loss of enormous benefits for an extended period of time. Whereas Olympic contenders will be forever with us, our resources will not.
Tony Flynn