PNG introduces new tax rates

Port Moresby (Papua New Guinea Post-Courier/PINA Nius Online) – Low-wage earners stand to benefit from new personal income tax rates that have been recommended to the government, Prime Minister Sir Mekere Morauta said.

Sir Mekere, who launched the report compiled by the tax review team led by former chief tax collector Sir Nagora Bogan, said many of PNG’s poorest tax payers would now not pay tax at all.

The review also looked at the mining and petroleum industry, gaming tax, corporate tax, forestry tax and tax administration. It was commissioned by the National Government in September last year.

The business community, which witnessed the launch at Parliament, said the review was a revolutionary one, although many conceded there were areas which needed refining.

The Bogan committee also recommended that the government reduce the number of tax brackets from eight to five, and lift the tax-free threshold from K4000 a year to K5500, immediately taking many low income earners out of the pay-as-you-earn tax net.

Sir Mekere said this meant that in the first bracket, workers earning between K5501 to K16,000 a year, might now pay the same tax rate for their overtime as on their regular wage.

Previously, many of those who worked extra hours for a few extra kina paid a higher rate of tax on their overtime because it took them into a higher tax bracket, Sir Mekere said.

The recommended tax brackets would mean that almost all tax payers would be better off, especially the lowest paid. For example, someone earning K6000 a year at present pays K300 on tax. Under the (proposed) new arrangements, they would pay K125.

The report said that the new rates would make almost all tax payers better off, with relative improvements in net pay being higher at lower income levels.

The report says a tax payer earning K20,000 a year now pays K4100 in tax but would pay K4025 under the proposed new rates while a tax payer earning K110,000 a year now pays K38,600 in tax but would pay K38,575 under the new rates.

The current eight tax brackets are K4000 to K5000 a year attracts a tax rate of 10 per cent, K5001 to K10,000 Ð 20 per cent, K10,001 to K20,000 Ð 30 per cent, K20,001 to K60,000 Ð 35 per cent, K60,001 to K80,000 Ð 37 per cent, K80,001 to K100,000 Ð 42 per cent and K101,000 and above Ð 47 per cent.

Under the proposed tax brackets, K5500 to K16,000 a year would pay a tax rate of 25 per cent, K16,001 to K70,000 Ð 35 per cent, K70,001 to K95,000 Ð 40 per cent and K95,000 and above to pay at a tax rate of 47 cent.

The committee said the changes are expected to cost the State about 1.4 per cent of 2001 personal income tax receipts or about K700,000.

Sir Mekere said yesterday that other recommendations relate to the way prescribed benefits such as housing and cars are taxed, and a fairer mechanism for calculating the deductions allowed for education expenses.

He said that the launch marked a change in the way PNG deals with taxation issues because for many years, successive governments had chopped and changed the system to meet the needs of the moment.

Sir Mekere said little or no attention was paid to what was best for individual taxpayers, corporations and PNG generally. He said Cabinet would discuss the recommendations next week and those that are endorsed would be included in the 2001 Budget.