Papua New Guinea Tax Authority: Reforms Update

Papua New Guinea Tax Authority comes to the RegTech focus section as it is set to proceed with the intended process of reforms. PNG’s Internal Revenue Commission (IRC) has set ambitious goals for the current year, aiming to significantly boost its revenue collection efforts. IRC Commissioner-General Sam Koim recently provided an update on the commission’s progress and outlook, indicating a strong performance thus far, with optimism for continued growth. “The IRC’s revenue projection for this year, compared to last year, increased by a whopping 28 per cent (K3.3 billion),” Koim stated. He noted that the commission is performing well against this elevated target and expects further gains over the next six months.

The IRC is counting on a combination of enhanced enforcement measures, targeted audits, and improved compliance rates to drive revenue growth. Koim expressed cautious optimism about the upcoming months, particularly due to ongoing reforms aimed at modernizing tax administration. Sectors such as mining and resources, which have shown strong performance, are expected to play a crucial role in the IRC’s revenue growth. The commission is also focusing on increasing collections from corporate and individual income taxes, as well as Goods and Services Tax (GST).

5 Key Takeaways

1. Significant Revenue Growth: Papua New Guinea’s Internal Revenue Commission (IRC) aims to boost revenue by 28% this year, largely driven by enhanced enforcement, targeted audits, and better compliance rates. The IRC has already collected K7.565 billion, surpassing projections and last year’s figures.
2. Challenges with Tax Leakages and the Black Economy: Despite revenue growth, the IRC faces significant challenges, particularly in tackling tax leakages and the shadow economy. Sectors like construction and retail, along with profit-shifting by multinationals, contribute to underreported income and tax evasion.
3. Economic and Structural Obstacles: Broader economic issues, such as foreign exchange shortages, financial literacy gaps, and the rapid growth of the informal sector, complicate tax compliance. The complexity of the tax system and infrastructure limitations, especially in remote areas, further hinder effective tax collection.
4. Government Intervention Needed: The IRC emphasizes the need for government action to address economic challenges, including mandating the repatriation of export revenues to strengthen the national currency. A coordinated approach involving tax reform, capacity building, and technological investment is crucial for overcoming these obstacles.
5. Vision for a World-Class Tax Administration: The IRC is committed to modernizing its operations to create a world-class tax administration. This includes simplifying tax laws, implementing advanced technology, and fostering a culture of voluntary compliance. By focusing on these strategies, the IRC aims to enhance PNG’s economic development and ensure fair tax contributions from all eligible taxpayers.

Papua New Guinea Tax Authority: Leakages and the Black Economy

Despite positive revenue figures, significant challenges remain, particularly in dealing with tax leakages and the shadow economy. In the first half of the year, the IRC collected K7.565 billion, surpassing budget projections by K332 million and exceeding the previous year’s figures by K540 million. However, Koim emphasized the need for continued vigilance to ensure that all eligible taxpayers meet their obligations. “The informal sector, including small-to-medium enterprises (SMEs), presents significant challenges due to underreporting of income and non-registration for tax purposes,” Koim said.

The IRC has identified several problematic areas, including the construction and retail sectors, where cash transactions are prevalent, allowing businesses to evade taxes more easily. Moreover, multinational corporations in sectors like mining and telecommunications engage in profit-shifting practices that reduce their taxable income within PNG. The black economy, comprising unregistered businesses and cash-based transactions, also poses a significant hurdle, with a substantial amount of potential revenue remaining uncollected.

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Addressing the broader economic challenges that affect tax compliance and revenue collection is crucial for the IRC’s mission. Key issues include the foreign exchange (FX) shortage, lack of financial literacy, and the rapid growth of the informal sector. Koim highlighted the need for government intervention, particularly in mandating the repatriation of profits made in PNG to strengthen the national currency, the Kina. “Export revenues must be brought back to the country,” he stressed.

Additionally, the complexity of the tax system, coupled with infrastructure gaps, particularly in remote areas, further complicates compliance and enforcement efforts. Many small business owners struggle with understanding their tax obligations, leading to widespread non-compliance. Koim pointed out that overcoming these challenges will require a coordinated approach involving tax reform, capacity building, and investment in technology and infrastructure.

Papua New Guinea Tax Authority: Vision for the Future

The IRC has a clear vision for the future: to become a world-class tax administration that supports Papua New Guinea’s economic growth and social development. Koim outlined the commission’s commitment to modernizing its operations, simplifying tax laws, and improving taxpayer services. “Our primary aim is to ensure that all eligible taxpayers comply with their tax obligations, thereby contributing to the nation’s revenue base and enabling the Government to provide essential services,” he explained.

Key strategies include implementing advanced technology systems, simplifying the tax code, and segmenting taxpayers to better tailor tax rates and obligations. The IRC also aims to educate taxpayers on the importance of paying taxes and build a culture of voluntary compliance, where they willingly meet their obligations. Efforts to strengthen enforcement, enhance public awareness, and invest in the capacity building of IRC staff support this vision. By focusing on these areas, the IRC hopes to create a fair and efficient tax system that contributes to PNG’s economic development while ensuring all taxpayers pay their fair share.