General Information
Country Name: Papua New Guinea
Currency: Papua New Guinean Kina (PGK)
Primary Tax Authority: Internal Revenue Commission (IRC)
Key Legislation:
- The Constitution of Papua New Guinea: Establishes the basic principles of the nation’s legal and taxation framework.
- Income Tax Act: Governs personal and corporate income tax.
- Goods and Services Tax (GST) Act: Regulates the application of GST, the local version of VAT.
Fiscal Authority Allocation
Centralized System:
Papua New Guinea has a largely centralized tax system, where the national government is responsible for collecting most taxes, including corporate and personal income taxes, and GST. Local governments may impose some minor levies and duties.
Corporate Income Tax (CIT)
Standard CIT Rate: 30%
Mining and Petroleum Sector: CIT rate for resource companies in the mining and petroleum sectors is 30-50%, depending on the resource type and project terms.
Taxable Income Definition: Corporate income tax is levied on a company’s worldwide income for resident companies and on Papua New Guinea-sourced income for non-resident companies.
Deductible Expenses: Business expenses such as salaries, interest, depreciation, and losses are deductible, subject to specific restrictions.
Loss Carryforward: Losses can be carried forward for up to 7 years (no carryback is permitted).
Incentives and Exemptions: Tax incentives apply to companies investing in priority sectors such as agriculture, tourism, and renewable energy.
Goods and Services Tax (GST)
Standard GST Rate: 10%
Scope of GST: GST is levied on the sale of goods and services in Papua New Guinea and on imported goods.
Exemptions: Basic goods and services such as medical supplies, education, and certain financial services are GST-exempt.
International GST Treatment: Exports are zero-rated, while imports are subject to GST.
Personal Income Tax (PIT)
PIT Rates:
- Progressive tax rates from 0% to 42%.
- Income up to PGK 12,500 is exempt, with higher rates applying to income above that threshold.
Taxable Income Definition: Residents are taxed on their worldwide income, while non-residents are taxed on Papua New Guinea-sourced income only.
Deductions and Allowances: Limited deductions are available, primarily for charitable contributions, medical expenses, and retirement fund contributions.
Treatment of Foreign Income: Foreign income is generally subject to tax, with relief available through double taxation agreements.
Additional Mandatory Contributions
Superannuation Contributions:
Employers contribute 8.4% of employees’ gross salary, while employees contribute 6%.
Workers’ Compensation: Employers must provide workers’ compensation insurance for their employees.
Withholding Taxes
Dividends: 17% withholding tax on dividends paid to non-residents.
Interest: 15% withholding tax on interest paid to non-residents.
Royalties: 10% withholding tax on royalties.
Payments to Non-Residents: Reduced withholding tax rates may apply under applicable double taxation treaties.
Transfer Pricing Rules
Transfer Pricing Regulations: Papua New Guinea follows the arm’s length principle for related-party transactions, requiring that prices align with those that would be charged between independent parties.
Documentation Requirements: Transfer pricing documentation is required to support compliance, though specific guidelines are still under development.
Special Tax Regimes
Mining and Petroleum Taxation: The resource sector is taxed at variable rates, with higher taxes applying to large-scale projects. Companies may also be subject to additional levies and royalties, especially in the natural gas sector.
Special Economic Zones (SEZs): Companies operating in SEZs benefit from reduced corporate tax rates and exemptions from import duties and GST.
Other Taxes
- Property Tax: Levied at the municipal level on the ownership of land and buildings. Rates vary based on property value and location.
- Excise Duties: Excise taxes apply to alcohol, tobacco, and fuel products.
- Capital Gains Tax: Capital gains are treated as ordinary income and subject to CIT or PIT rates.
- Stamp Duty: Stamp duty is imposed on the transfer of certain properties and transactions, such as real estate and shares.
Double Taxation Agreements (DTAs)
Key Partner Countries: Papua New Guinea has signed DTAs with several countries, including Australia, New Zealand, Singapore, and the United Kingdom.
Withholding Tax Reductions: DTAs reduce withholding tax rates on dividends, interest, and royalties.
Claiming Treaty Benefits: Residents of treaty countries can claim treaty benefits by providing relevant documentation, such as a certificate of residence.
Local Taxes
Provincial and Local Levies: Local authorities may impose minor levies or license fees. However, these taxes do not contribute significantly to overall tax revenues.
Compliance and Reporting
Corporate Tax Filing Deadlines: Corporate tax returns must be filed annually by March 31 of the following year.
GST Filing Requirements: GST returns are filed monthly, with payments due within 21 days of the end of each month.
Penalties for Late Filing: Penalties apply for non-compliance, including interest on late payments and fines for failing to file returns on time.
Recent Developments
Tax Reforms: Papua New Guinea has been undertaking a series of tax reforms aimed at modernizing its tax system and improving tax compliance. Recent changes include tightening transfer pricing rules and expanding the scope of GST.
Digital Taxation: Papua New Guinea is considering introducing measures to tax digital services, following global trends in addressing the taxation of multinational tech companies.
Increased Resource Sector Taxation: The government has signaled a future increase in taxes on the mining and petroleum sectors to ensure more revenue from resource extraction benefits the country’s economy.
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