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Papua New Guinea Taxation

Review (2013-2015)

Issues Paper No 10:

Other Indirect Taxes

Prepared by

the Taxation Review Committee

21 September 2015

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Consultation Process

The Tax Review Committee (Committee) is seeking your feedback and

comments on this Issues Paper. This and other issues papers have been

released throughout 2014 and the first quarter of 2015 are designed to promote

targeted discussion and debate on particular areas subject to Review.

Consultation questions are included throughout the paper to guide responses

but stakeholders should feel free to raise any issue of relevance.

Feedback in response to this Issues Paper will help to inform the development

of the Committee’s draft recommendations to Government, which will be

subject to a further round of consultation before being finalized.

To ensure that there is transparency in the consultation process, all

submissions are published on the Tax Review website

(www.taxreview.gov.pg) unless the submission is by justification, marked ‘CONFIDENTIAL’.

Submissions in response to this paper are due by 6th October 2015.

All submissions should be sent via mail and/or email to:

Head of Secretariat Tax Review Secretariat c/- Department of Treasury PO Box 542, Waigani, NCD

Email: [email protected]

For any other general enquiries, email: [email protected] or call the Tax

Review Secretariat on (675) 325 3775 or (675) 325 5977.

http://www.taxreview.gov.pg/

mailto:[email protected]

mailto:[email protected]

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Table of Contents

Consultation Process ................................................................................ i

FOREWORD ......................................................................................... V

EXECUTIVE SUMMARY ......................................................................... 1

CONSULTATION QUESTIONS ............................................................... 3

Stamp Duty. ................................................................................................ 3

Gambling Taxes. ......................................................................................... 3

Departure Tax............................................................................................. 4

Environmental Tax ..................................................................................... 4

CHAPTER 1: OVERVIEW OF OTHER INDIRECT TAX REGIME IN

PNG 5

What are Indirect Taxes? ............................................................................ 5

Revenues from Other Indirect Tax ............................................................. 6

CHAPTER 2: STAMP DUTIES ................................................................ 7

Overview .................................................................................................... 7

Types of stamp duty ................................................................................... 7

Stamp Duty amount ................................................................................... 7

Revenue from Stamp Duty ......................................................................... 8

Why Stamp Duty? ...................................................................................... 9

Is stamp duty a simple tax? ...................................................................................... 9

Is stamp duty an efficient tax? .................................................................................. 9

Is stamp duty equitable? ......................................................................................... 10

Stamp duty is a ‘transaction tax’ calculated on the market value

of the property. ......................................................................................... 10

Issues ........................................................................................................ 11

Indirect interests in ‘Land-rich’ companies ............................................. 11

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Transfers of Mining and Petroleum Interests .......................................... 12

Betting Tickets .......................................................................................... 13

CHAPTER 3: GAMBLING TAXES .................................................... 15

Overview .................................................................................................. 15

Gambling Taxes in PNG ........................................................................... 16

Scope of Gambling Taxes ......................................................................... 16

i. Bookmakers Tax .................................................................................. 17

Revenue ................................................................................................................... 17

ii. Bookmakers License Fee ...................................................................... 18

Overview ................................................................................................................. 18

Licensed bookmaker’s fees. .................................................................................... 18

Why bookmakers license fee? ................................................................................. 19

iii. Tax on Gaming Machines .................................................................... 19

Overview ................................................................................................................. 19

Revenue from Betting Tax on Gaming Machines.................................................. 19

Gaming Machines License and Permit Fees ............................................ 20

Lotteries and Casinos ............................................................................... 21

Lotteries ................................................................................................................... 21

Casino....................................................................................................................... 21

Internet Gambling and international Issues ............................................ 22

Possible Reform Direction ........................................................................ 22

CHAPTER 4: DEPARTURE TAX ............................................................ 24

Overview .................................................................................................. 24

Revenue from Departure Tax ................................................................... 24

NAC charges ............................................................................................ 25

Why Departure Tax? ................................................................................ 25

Is the departure tax efficient? ................................................................................. 26

Is the departure tax fair? ......................................................................................... 26

Is the departure tax simple and easy to administer. ............................................. 26

The departure tax has not been increased since introduction and is low

by regional standards .............................................................................................. 26

Possible Reform Direction .................................................................................... 27

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CHAPTER 5: ENVIRONMENTAL TAXES ............................................... 28

Overview .................................................................................................. 28

Options for addressing environmental concerns ..................................... 29

Climate Change ........................................................................................ 29

Sustainable Transport and Fuel Use ........................................................ 30

Resources .................................................................................................. 32

Views from the consultation .................................................................... 33

Possible Reform Direction .................................................................................... 35

APPENDIX A. TYPES OF STAMP DUTY AND DUTY AMOUNT ................. 36

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FOREWORD

In 2013, the O’Neill-Dion Government committed to comprehensively review

PNG’s revenue regime to ensure it remains relevant, efficient and effective.

Government revenue is critical to funding essential services and infrastructure for

Papua New Guinea, to share the benefits of prosperity across families,

communities and regions and to lay the foundations for future growth.

Consequently, this Review is a high priority of the Government and an important

platform of its economic and fiscal strategy.

This paper looks at Other Indirect taxes which are currently implemented in the

country. The taxes considered are: Stamp Duty, gambling taxes, Departure Tax

and briefly environmental taxes.

Despite being relatively less significant revenue contributors to the government

purse, they are widely used for a number of reasons. These taxes are commonly

used in developing countries as a means to generate additional tax revenue for the

government either because they may be considered as efficient taxes that nets the

wider general population into the tax system or they may be simple to administer.

The revenue raised by stamp duties on property and similar interests is significant

and cannot easily be replaced without significant changes to the overall structure

of the tax system. A broad-based system of property taxation and capital gains

taxes would provide many advantages but has not been canvassed in this draft.

Gambling taxes are an economically efficient source of revenue but do not appear

to have much impact on addressing problem gambling. This paper discusses the

general increasing trend of revenue from these taxes and the legislative framework

to control gambling through licensing. It is important to see that revenues derived

from gambling should be channeled through the budgetary process and to

discourage hypothecation of taxes.

Since the introduction of the K30 Departure Tax in 1988, the rate has not been

adjusted through indexation or as the cost to meet the upkeep of the airport

facilities and security.

This is an important opportunity for Papua New Guineans to have their say on

these issues.

Sir Nagora Bogan, KBE

Chairman, Tax Review Committee

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EXECUTIVE SUMMARY

Apart from the important indirect taxes such as GST, import duties and excise, there are other indirect taxes which raise less revenue but are commonly used

because of factors such as efficiency, fairness and simplicity.

This paper, discusses some of the major indirect taxes that are currently used in the country.

Chapter 1 is an overview of the variety of other indirect taxes that are currently being imposed in the country. These are, Stamp Duty, gambling taxes, Departure Tax and environmental ax. Revenue from these taxes is less than other taxes such as GST and income tax but are still significant and increasing over time.

In chapter 2, the paper discusses Stamp Duty as a significant but volatile source of revenue for the government. Stamp Duty is imposed on different types of instrument ranging from property transfers, agreements for sale, declaration of trust over or grant of certain property and bookmakers. The rates differ depending on the nature and value of transaction.

Chapter 3 commences with an overview of the gaming industry and the legislative governing framework for all forms of gambling activities in the country. It further highlights the general increasing trend in revenue collected from these activities especially betting on poker machines. The paper notes that imposing tax on gambling does not adequately address problem gambling and that other forms of social policy and regulation need to be developed. The paper also argues that hypothecation of taxes should be replaced with allocation of funding through the standard budgetary processes.

The paper also identifies some potential areas of gambling which are currently untaxed and where the government could consider imposing taxes, particularly lotteries.

Chapter 4 discusses the Departure Tax which has not had the rate reviewed since its introduction in 1988. The paper proposes that the rate should be reviewed based on an inflationary adjustment or the costs currently incurred for specified services.

Chapter 5 briefly discusses environmental challenges that are placed on governments in their effort to mitigate environmental damage. The paper notes that taxation is not necessarily the best mechanism for dealing with many environmental problems. It notes some submissions from stakeholders

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on the possibility of imposing taxes on fuel and vehicle excise and also on logging taxes which could be seen as having some environmental objectives.

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CONSULTATION QUESTIONS

Stamp Duty.

Question 1: Do the current stamp duty rules including their rates significantly impede business activity, reorganisations, etc?

Question 2: The arrangement for charging for transfers back to vendors seems inequitable. What experience do people have of this arrangement?

Question 3: What other problems are there with the existing stamp duty system?

Question 4: Are the land-rich company rules effective? Do they achieve their intended purpose?

Question 5: Are the current stamp duty exemptions, originally designed to provide incentives for exploration, still justified?

Question 6: What is the purpose in having both stamp duty and bookmakers’ turnover tax? Is stamp duty on betting tickets inequitable? Is there a way of removing stamp duties and adjusting turnover tax to compensate, which ensures current distributions to national and provincial governments are retained?

Gambling Taxes.

Question 7: What are the benefits in expanding or maintaining the scope of bookmaking activities? What evidence is there that the existing limitations help with problem gambling?

Question 8: Does internet gambling raise any issues? Will this become a problem in the future? What are the issues around collecting tax from overseas providers?

Question 9: Should the current arrangement of earmarking tax for specific purposes be replaced by a system of allocating funding through the budget process? What would be the advantages and disadvantages of this approach?

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Departure Tax

Question 10: Would an increase to departure tax raise significant problems? How should a new rate be calculated?

Environmental Tax

Question 11: What are the priority environmental issues for PNG? Is an environmental tax approach the most effective mechanism to deal with these?

Question 12: Is engine displacement, emissions or fuel efficiency the best approach for distinguishing between vehicles? Is a tax or standards approach the most effective?

Question 13: Should some imports of motor vehicles be restricted on environmental and/or safety grounds? Is a differential tariff an effective way to limit such imports?

Question 14: Should the tariff be used to influence the choice of vehicles imported?

Question 15: Do the royalty/export tax arrangements for mining and logging adequately reflect environmental outcomes?

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CHAPTER 1: OVERVIEW OF OTHER INDIRECT TAX

REGIME IN PNG

What are Indirect Taxes?

Tax revenues can be divided into two categories. A direct tax which is charged on a person (individual or company) and an indirect tax which is imposed on a transaction or an event. GST, import duties and excises are important indirect taxes in PNG.

This paper will broadly discuss in each chapter, other indirect taxes as set out in Table 1.

Table 1: Other indirect taxes

Tax, duty etc Description

Stamp Duty Duties are imposed by the national government on specified transactions (upon the execution of certain documents). The rates vary by type of transaction. Duty is payable on sale or transfer of real property, apartment titles, mining and petroleum interests, interests in land companies, and leases. Duty is calculated on the market value of the property. Duty is also imposed on wagers with bookmakers and lottery tickets.

Gambling Taxes

Bookmakers turnover tax

Bookmakers licence fee

Betting Tax (Gaming machines)

The tax is 4% of the value of the bet made by a punter on a race.

Bookmakers license fee of K40, 000 per bookmaker is payable per annum.

46% of the profits (revenue less payouts) from gaming machines are paid to the National Government.

Departure Tax Departure tax of K30 per person is payable by people who travel to foreign destination by an aircraft or ship. The departure tax is including in the ticket and the airline pays

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the tax to the IRC each month.

Environmental Taxes

There is limited use of taxation to reduce environmental damage.

Revenues from Other Indirect Tax

Chart 1: Other Indirect Taxes, 2000-2014

Source: IRC and NGCB for Betting (Gaming Machines) Tax, 2015

Betting Tax (gaming machines) is the highest portion of the revenue from this group of taxes and has grown strongly to K164 million in 2014.

Stamp duty has been a relatively volatile revenue source, largely reflecting one-off mining related transactions and changes in land sales which have varied in response to major economic developments. It is nevertheless one of the other big indirect tax revenue sources for the government.

Bookmaker’s turnover tax has remained relatively low over the last 15 years, increasing from K4 million to K13 million in 2014.

Since 2000, the departure tax remained between K3 million and K6 million with only an increase to K7 million back in 2012.

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CHAPTER 2: STAMP DUTIES

Overview

Stamp duty is levied under the Stamp Duties Act 1952 (SDA). Stamp duty in Papua New Guinea is payable on the transfer, agreement for sale, and declaration of trust over, or grant of certain property. The rate of stamp duty varies depending on the nature of the transactions and the value of that transaction. The duty is payable within 14 days of the documents being lodged for stamping.

The SDA provides for a number of exemptions for stamp duties, particularly on homes used as personal residences.

Types of stamp duty

Below is the list of types of stamp duties in PNG.

1. Conveyances or Transfers on the Sale of Real Property

2. Sales of apartments, etc under company title

3. Transfers of Marketable Securities

4. Leases or Agreements for Leases of Land and Goods

5. Deed of Gift

6. Deed of Settlement

7. Partitions or Divisions of Real Property

8. Partitions or Divisions of the interest of lessees under leases of land in

the Country

9. Transfer and Assignment of Leases of Land in the Country

10. Transfers of Mining and Petroleum interests

11. Acquisition of Interests in Landholding Private Corporations

12. Betting Tickets

13. Lottery Tickets

Stamp Duty amount

The amount of duty payable depends on the type of transaction and its rates

can be seen in more detail in Appendix A.

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Revenue from Stamp Duty

Stamp duties are a significant though volatile source of PNG revenue. The largest component is derived from real estate and a series of exemptions for personal residences for PNG citizens means that the predominant incidence of stamp duty is on higher value properties in the larger cities and purchases by foreigners.

The bar chart below shows that since 2000, stamp duty has slightly increased between K40 million to K80 million in 2007 but declined to around K60 million in 2013. However, 2014 saw a very steep climb to around K137 million.

Chart 2: Total Stamp Duty, 2000-2014

Source: IRC 2015

It was unfortunate that there was no data to give an indication on the amount of duties collected on each type of transaction. However, IRC indicated that the most stamp duty is levied on sales of properties, lease agreements, shares and mining agreements.

Mining agreements account for some very large stamp duty payments. Some transactions have attracted duty of K20 million or K50 million per transaction.

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Why Stamp Duty?

Stamp duty on the transfer of commercial and residential land and buildings is a significant, though volatile, source of tax revenue. Stamp duties are poor taxes. As a tax on transferring land, they discourage land from changing hands to its most valuable use. Stamp duties are also an inequitable way of taxing land and improvements, as the tax falls on those who need to move.

These issues again need to be considered against the principles of good taxation policy taxation. These principles have been discussed in more detail in Issue Paper No 3. However, in the following discussion there are some issues that will vary depending on the specific stamp duty. For example, duty on securities may have different characteristics than those on property.

Is stamp duty a simple tax?

Stamp duty is a relatively simple tax to collect, since it is levied on the sale price, which is easily observable. Traditionally, it is the administrative simplicity of the tax that was one main reason why the stamp duty was introduced in common law countries. For example, the maintenance of title deed offices made it administratively simple to levy a tax on transactions, particularly since land values needed to be reported.

Now the availability of broad-based taxes on income and consumption means the relative simplicity of stamp duty is not a strong justification for retaining the tax. However, the revenue is important and would need to be made up somewhere else if there were to be any changes.

Is stamp duty an efficient tax?

Stamp duties taxes are an inefficient tax when levied on business. This is because stamp duties provide businesses with an incentive to minimize their property transactions. For example, the stamp duty may be an incentive for a business to continue to use existing buildings rather than moving to a lower cost region and buying a new property which might otherwise be more economically sensible.

As businesses are more likely to be mobile than consumers, stamp duties are likely to be particularly inefficient, especially in their impact on decisions on land use. This argument also holds for private citizens, where stamp duty may be a disincentive to move house.

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Is stamp duty equitable?

The exemption of many low value properties (discussed below) is the fundamental mechanism for providing equity for stamp duty on conveyancing. Given that higher valued properties are often purchased by people with higher incomes, it may appear equitable that the average rate of stamp duty increases as the value of the property increases. However, as property is just a part of a household’s consumption and wealth, stamp duties are a poor mechanism for improving equity. The tax instead falls most heavily on people with a preference for housing consumption. For example, a person who moves house more frequently than another will pay relatively more stamp duty throughout their life. This becomes a particular issue when people need to move for work or similar reasons.

The current rules1 provide concessions for first home buyers and for people purchasing a residence where they have previously owned a property in PNG, but these rules themselves seem inequitable. The rules exempt first home buyers from stamp duty on purchases below K500,000 and provide a reduced rate for those moving house. The concession is also extended to people buying a second house for use as their “principal” residence. IRC explains2 that this rule is for people who need more than one residence in different parts of the country. These concessions are restricted to PNG citizens.

The impact of this rule is that the standard rate of stamp duty only applies to people who are not citizens or who are buying a third or subsequent property. This may present a barrier to foreign investment while the third property rule presumably causes significant compliance difficulties for IRC.

Stamp duty is a ‘transaction tax’ calculated on

the market value of the property.

Duties are imposed by the PNG government on the execution of certain

documents (‘instruments’). Duty is payable on instruments connected with:

the sale or transfer of real property including apartment titles, mining

and petroleum interests, interests in land companies, and leases

generally:

1 SDA, Schedule 1, Item 5 2 http://www.irc.gov.pg/stamp_duty.html#convTransRealProp

http://www.irc.gov.pg/stamp_duty.html#convTransRealProp

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marketable securities;

gifts and settlements; and

betting taxes and lottery tickets3.

The rates vary by type of instrument. Ad valorum rates range from 0.4 to 5

percent. Mineral and petroleum license fees are subject to a specific stamp duty

of K10,000 per license.

Question 1: Do the current stamp duty rules including their rates significantly

impede business activity, reorganisations etc.

Stamp duty is generally applies to instruments relating to property or events

inside PNG irrespective of where they are executed4.

Issues

The SDA provides that if a contract to purchase real property is cancelled after transfer and the property is then transferred back to the vendor both the vendor and purchaser are liable for stamp duty (section 40).

Question 2: This arrangement for charging for transfers back to vendors seems

inequitable. What experience do stakeholders have of this arrangement?

Question 3: What other problems are there with the existing stamp duty

system?

Indirect interests in ‘Land-rich’ companies

Conveyance duty on land transactions might be avoided by indirectly

acquiring land through transfers of shares and units in landholding entities. To

address this conveyance duty is payable on the transfers of indirect interest in

3 Gambling related stamp duties will be discussed in the gambling tax section. 4 Instruments executed outside of PNG prior to 1 January 1995 only become liable for duty if

they are brought into the country, SDA section 5(2)(a).

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land5 − including where the instrument is executed outside of PNG6. Land

includes petroleum or mining information.

The rules only apply to the acquisition of majority (50%) interests (including

through a chain of companies) of private corporations. It is noted that

following reforms in Victoria, instead of using a majority interest test for the

application of similar rules a threshold test applies so that an entity with a

direct or indirect interest worth more than AUD1 million is subject to the

‘land-rich’rules.

These land-rich company rules − which strengthen the stamp duty regime −

were the outcome of a compromise in the early 1990s, flowing from attempts to

introduce a capital gains tax. Stamp duty on these transactions was considered

a more administratively feasible collection mechanism. However, there is a

basic question as to whether, in revenue terms, the stamp duty is an adequate

replacement for a capital gains tax.

In practice IRC tax administrators have rarely encountered this issue,

suggesting the rule is being ignored or avoided.

Question 4: Are the land-rich company rules effective? Do they achieve their

intended purpose?

Transfers of Mining and Petroleum Interests

Mining and petroleum interests should conceptually have treatment similar to

real property. Real property and associated mineral and petroleum interests

cannot move to avoid PNG tax; so they are regarded as an efficient source of

revenue. The land-rich company rules discussed above also protect duty

collections where mining and petroleum interests are indirectly held.

But in the early 1990s transfers of certain mining/petroleum interests were

given preferential treatment to encourage mining and petroleum exploration:

5 Stamp Duties Act, Division 10A 6 Stamp Duties Act, section 5A

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The duty on the transfer of mineral tenements, exploration licenses and

petroleum licenses and associated rights as well as mining information

for both exploration and development licences is limited to K10, 000. This

is a rather small amount - given the typical value of such leases – and

equates to a notional maximum value of K200, 000 on the basis of the

standard stamp duty rates. This concession should be reviewed as part

of the general consideration of the mining and petroleum tax regimes,

including capital gains tax.7

Issues Paper No 5: An Examination of the Advantages and Disadvantages of Tax

Incentives discussed the policy principles applicable to tax incentives more

generally.

Question 5: Are the current stamp duty exemptions, originally designed to

provide incentives for exploration, still justified?

Betting Tickets

Bookmakers also pay stamp duty on each bet placed. This is charged on a sliding scale based on tiers of bet size, e.g. bets between K5 and K10 pay K1.8 Because of the tiering it is not possible to calculate an exact rate for this duty without detailed data but for small bets total tax is above 20 per cent; larger bets have effective tax closer to 10 per cent (see Figure X). This seems to be inequitable.

Although no data was available on stamp duty collections on betting, it seems that the collections are likely to be of a similar order of magnitude to the specific bookmaker’s turnover tax.

It is not clear what purpose is served by separate stamp duty and bookmakers’ turnover tax. It adds unnecessary complexity and it would be possible to remove the stamp duty and adjust the rate of the turnover tax to compensate. However, one of the key issues that would need to be considered is how to maintain the current cost sharing arrangements between the different levels of government.

7 See Tax Review Committee, Issues Paper No 1: Mining and Petroleum Taxation. 8 Stamp Duties Act 1952, Schedule 1, Item 17, reproduced at Appendix A

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Table 2: Stamp duty on betting tickets.

Price of Betting Tickets Stamp Duty

not exceeding K5.00 K 0.50

exceeding K5.00 but not exceeding K10.00 K 1.00




exceeding K100.00 K 5.00

Chart3: Stamp Duty and Total Tax (%) by Size of Wager

Source: Tax Review Calculations

Question 6: What is the purpose in having both stamp duty and bookmakers’ turnover tax? Is stamp duty on betting tickets inequitable? Is there a way of removing stamp duties and adjusting turnover tax to compensate, which ensures current distributions to national and provincial governments are retained?

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CHAPTER 3: GAMBLING TAXES

Overview

All gambling activities are governed by the Gaming Control Act 2007 (GCA). The legislation provides for the control of all forms of gaming including lotteries, games and wager, gaming machines and casinos for their operations, and for related purposes. The legislation enables the establishment of the National Gaming Control Board (NGCB), whose principal function is to consider applications for, and where appropriate granting, permits and licenses and to control the operations of gaming machines.

The GCA also contains the taxing arrangements for gambling.

Gambling taxation constitutes an important revenue source for the government. However, gambling can also cause significant social problems and governments need to consider their approach to managing problem gambling. This creates a policy conflict that the government may need to resolve.

Gambling taxes are economically efficient but do not have much impact on overall levels of gambling. Therefore they do not appear to an effective mechanism to manage problem gambling.9 Nevertheless, increasing tax may increase the impact of gambling for problems gamblers and their families. The best approach to problem gambling appears to be social programs including direct regulation.

Government restriction on the supply of gaming services, implemented through licensing arrangements, means that some gambling business earn economic rent which should be appropriated by the government, either through license fees or taxation. 10

9 ACT Government (2012), ACT Tax Review, Canberra, p106 10 Australia’s Future Tax System (2009), Report to the Treasurer, Detailed Analysis, Volume 2,

Canberra, p457.

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Gambling Taxes in PNG

There are other gambling taxes in the country such as lotteries and casinos which will be briefly discussed at the end of this chapter. However the two most important gambling taxes are;-

I. Bookmakers Turnover Tax; and

II. Taxes on gaming machines, including Betting Tax.

Note that stamp duty is also payable on betting tickets as discussed in the previous chapter.

Gambling revenues are growing as can be seen from the table below.

Table 3: Revenue from Gambling Taxes, 2000-2014

REVENUE FROM GAMBLING TAXES (K Millions)

Item 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Bookmakers

Turnover

Tax (a)6 6 6 6 7 9 8 9 9 13

Betting Tax

(b) 94 108 96 90 93 107 127 157 123 164

Total 100 114 102 96 100 116 135 166 132 177

(a)Source: IRC, 2015 (b) Source: NGCB, 2015, excludes CBF and NGCB components

Scope of Gambling Taxes

Under the GCA, betting is restricted to a number of gambling activities:

race meetings in PNG or Australia;

boxing or wrestling bouts anywhere; and

other events11 as determined by the NGCB.

However, bookmaking is now typically an international operation and the range of options for betting has increased, particularly with the growth of internet betting. In Australia, for example, it is possible to make bets on a wide variety of events such as:

11 The NGCB reports that of other events are rarely made.

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sporting matches including a variety of bets such as scores as well as

overall results;

election results, both domestically and internationally;

entertainment, e.g. Academy Award winners12.

The limitations on bookmaking date back to the original Bookmaking Act 1974 and may have been intended to limit problem gambling or it may just reflect the state of bookmaking at that time.

Question 7: What are the benefits in expanding or maintaining the scope of bookmaking activities? What evidence is there that the existing limitations help with problem gambling?

i. Bookmakers Tax

The GCA provides13 that a bookmakers turnover tax of 4 per cent is payable by every bookmaker on the gross amount of every bet made, whether or not payment for that bet has been received.

As a compliance mechanism, bookmakers are required to use betting slips printed and purchased from the IRC, which can then track activity.

Revenue

Revenue from the bookmaker’s turnover tax has been increasing steadily over the last 14years. As seen in the chart below, in 2000 a total of around K4 million was collected. Since then it has been slowly increasing to almost K24 million in 2014.

12 For further examples, see http://www.sportsbet.com.au/ 13 GCA, Part VI, Division 4

http://www.sportsbet.com.au/

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Chart 4: Revenue from Bookmakers Tax: 2000-2014

Source: IRC, 2015

ii. Bookmakers License Fee

Overview

The GCA provides14 that a fee of K40,000 is payable for a bookmaker’s license and for each renewal. The license remains in force for 12 months and may be renewed by the NGCB for a further period of 12 months.

Licensed bookmaker’s fees.

There are currently 12 licensed bookmakers in PNG. Most are operating in the NCD and Lae whilst five other main provinces have one or two. A total of K480, 000 is collected each year from bookmaker’s license fees which are collected by the NGCB and used to fund youth and community based projects.

Bookmakers are also required to provide a K50,000 deposit and a bank guarantee of K100,000 as security against the liabilities of the bookmaker for all bets taken. The money deposited as security remains the property of the

14 GCA, Section 198

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bookmaker but the interest that is incurred out of that investment will remain with the NGCB.15

The NGCB may, for any reasons that it considers necessary, by notice in the National Gazette, limit the number of bookmaker’s licenses in the country.

Why bookmakers license fee?

Government restrictions on the supply of gambling services such as bookmaking are implemented through the issuance of licenses, and the fees collected are not a significant source of revenue. Nevertheless, licencing it is an important part of the overall regulatory system as it provides a mechanism for implementing controls on gambling. Along with the deposits and securities that are required, the licence fees provide a barrier to entry which may provide some protection from financial failure, but also provide an economic rent to the bookmaker.

iii. Tax on Gaming Machines

Overview

Tax on gaming machines is levied under the GCA16. The Gaming Machine Act is administered by the National Gaming Control Board, which issues licenses and monitors all gaming machines in the country.

Revenue from Betting Tax on Gaming Machines

Under the GCA, revenue from gaming machines is tightly regulated. At least 85 per cent of total turnover must be returned as prizes to players.17 The GCA provides that the remainder (i.e. 15 per cent) is the gross profit and this is shared out as follows:

46% Betting Tax

14% Community Benefit Fund

5% NGCB

10% Operators

25% Site Owners

15 GCA, section, 199,(2). 16 GCA, Part IV, Division 7 17 GCA, section 162

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Chart 5: Gaming Machine Revenue 1995-2014 (K Million)

Source: NGCB, 2015

In 2007, the GCA established the CBF to promote a balanced contribution by the gaming industry to general community benefit and amenity. A CBF Account was also established which receives 14% of the gross profit. The CBF is spent on youth and community projects. The fund is managed and operated by the Board which is appointed by the Minister responsible18.

The NGCB receives 5 per cent of the gross profit to fund its operations.

Gaming Machines License and Permit Fees

Apart from collecting gaming machines tax, the NGCB also collects license and permit fees from applications to provide gambling activities. An annual permit fee is collected from site owners at the cost of K300 per machine whilst the gaming machines owners are liable to pay a license fee of around K35,00019 which is renewable annually.

18 GCA, S163(6)(a) 19 The figures were given during TRC’s consultation with NGCB

0

50

100

150

200

250

Betting Tax CBF NGCB

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The Tax Review Committee understands that the NGCB is currently reviewing its gaming legislation and regulations.

Lotteries and Casinos

Lotteries

Lotteries are the most widespread form of commercial gambling in the world. Lotteries offer several main products, which differ in probability of winning, prize structure, and frequency of drawing and the sense of player participation.

Under the GCA20, the NGCB may grant a license to operate an authorized lottery in PNG. PNG Gold Lotto used to provide the instant or scratch-off ticket with thin covering that, once scratched off, revealed what prize if any the purchaser has won. However, due to accountability and transparency issues it has been closed.

NGCB granted a license to PNG Lotto Limited to provide lottery gambling in the country. Since 2012 the Government has allowed the introduction of a new lottery, this time on mobile phones. PNG Lotto has engaged Digicel mobile phone service provider to conduct its SMS mobile lottery. Each SMS costs around 49t which may make it particularly attractive to people on low incomes seeking to benefit from the chances of winning big.

The GCA provides for betting tax on lotteries to be defined via regulation. Currently there is no regulation imposing tax on the mobile phones lottery which leaves a competitive advantage to tax the activities. However, the NGCB in consultation with relevant state agencies is now in the process of reviewing and developing the necessary legislation to provide the regulatory framework for the lottery industry in the country.

Casino

If lotteries are the gambling games for the mass population, the casino - at least in popular imagination - is the venue for the tuxedo and evening dress elite.

Despite having legislation in place, there is currently no permit granted for operation of casinos in the country. Under the previous government there was

20 GCA, section 235

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an attempt to establish a casino in Port Moresby but due to delay in the construction of the Casino Hotel, it has now been suspended.

Internet Gambling and international Issues

The GCA envisages overseas internet providers seeking approval from the NGCB to operate internet gambling in the country21. However, in the consultation with NGCB, it appears that internet gambling currently is not something that the NGCB is focused on. Internet gambling in Papua New Guinea is not as big like in other developed countries like Australia.

The GCA provides that a foreign person may apply to NGCB for approval to conduct overseas gambling including through the internet. Internet gambling is a growing trend throughout the world and the growing popularity of gambling via external sites can lead to erosion of domestic gambling revenues.

Internationally provided gambling services are particularly hard to regulate but there should be consideration of an appropriate legislative regime before these services become a significant part of the gambling arrangements.

Question 8: Does internet gambling raise any issues? Will this become a problem in the future? What are the issues around collecting tax from overseas providers?

Possible Reform Direction

Government restrictions on the supply of gambling services, implemented through licensing arrangements, mean that some gambling businesses can earn excess profits (economic rent). Economic rent is an efficient tax base and should be appropriated by the government, either through license fees or taxation. However, it should be noted that taxation does not appear to be an effective mechanism to address problem gambling as it is not clear how problem gamblers react to higher taxes. This suggests that other mechanisms need to be considered for managing the social aspects of gambling.

While gambling taxes constitute an important revenue source the government there may be difficult choices in balancing revenue raising with regulating gambling in a way that limits problem gambling. For this reason, the government should explore options for the regulation and taxation of

21 GCA, Section 236

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gambling that would minimize conflicts in policy-making between revenue raising and addressing problem gambling

Unlike other taxing Acts, which come under the authority of the Minister for Treasury, the GCA is primarily under the authority of the Prime Minister. There is an argument that as a matter of policy the two functions of taxing and gambling control should be administered separately. The Treasurer, as the minister responsible for budgetary matters, should administer the tax elements and another minister, such as the PM, should manage the gambling functions such as licensing. Ideally, this arrangement should remain as it is , but with more clarity in terms of the responsibility and political mandate shared between the Prime Minister and the Treasurer, in so far as it relates to taxing powers.

Over the years, surplus money has been put into the CBF to support the funding of major sporting and social events in the country.

Notwithstanding the merits of such activities, earmarking of funds in this way (i.e. hypothecation) undermines the basic budget processes which involve active decision making about spending priorities and control of budgets by responsible ministers.

Question 9: Should the current arrangement of earmarking tax for specific purposes be replaced by a system of allocating funding through the budget process? What would be the advantages and disadvantages of this approach?

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CHAPTER 4: DEPARTURE TAX

Overview

In PNG, a flat departure tax of K30 per person is payable by people who travel to foreign destinations by aircraft or ship. Departure taxation is a common feature of international travel. The international traveler is legally liable to pay the tax, not the airlines.

But similar to many of the countries in the Pacific and around the world, the departure tax is embedded in the ticket price and collected by airlines or travel agents. They pay the tax to the IRC on the 21st day of each succeeding month. Monies are paid into general revenue.

Like many countries, in PNG the following are exempted from departure tax:

transit passengers,

children traveling free of charge

members of the Defense Force traveling on duty

airline crew

Revenue from Departure Tax

Chart 6. Departure Tax revenue collection – 2000-2014

Source; IRC, 2015

The departure tax was introduced in 1988. The K30 fee has not changed since then.

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Since 2000, collections from departure tax have remained low from K3 million with slight drop of K1 million in 2003 but picked up the next year to K4 million and again dropped to K1 million in 2006. It started picking up to K3 million and since 2006; it climbed from K3 million to K7 million in 2012 but slightly dropped to 6 million in 2013 and 2014 respectively.

NAC charges

Apart from the revenues collected from the departure tax there are some additional charges and fees imposed by the National Airport Corporation (NAC) such as aeronautical charges and non-aeronautical. These are payable to the NAC and not paid into general revenue. These cost recovery charges are under separate consideration by the Review.

Table 4. NAC aeronautical charges for airports

Why Departure Tax?

The reasons why the tax was introduced are not clear, although it has been suggested that they were intended to fund the upkeep of the airport facility.

The Australian departure tax (the Passenger Movement Charge) is designed to recover the costs of customs, immigration and quarantine processing of passengers entering and leaving the country.

Whatever the reasons for its introduction, it is clear that the present K30 charge only party contributes the costs of (1) international departures or (2) the airport facility.

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Departure taxes have also been used to address environmental issues. For example Fiji recently announced that ten dollars (FJD10) out of the increased departure tax of FJD200 will go towards the conservation of the environment. Similarly a part of the United Kingdom airport departure tax is to address environmental damage from airline travel.

These issues need to be considered against the principles of good taxation policy outlined in Issues paper No 3.

Is the departure tax efficient?

Where the international passenger market is dominated by price sensitive low budget holiday makers, the imposition of a departure tax can have an important impact on their decision to travel to a destination. On the other hand, business travelers and luxury tourists are less likely to be sensitive to the price of their airfares (including departure tax). At the current low K30 level modest increases to the tax are unlikely to affect tourism.

Is the departure tax fair?

The issue of fairness relates only to fairness for PNG citizens. PNG citizens who can afford to travel overseas tend to have higher incomes and to afford these travel services, and so, as a matter of overall tax mix, departure tax may be seen as fair tax.

Is the departure tax simple and easy to administer.

Provided a single rate with few exemptions applies, in theory the tax is relatively simple to administer and collect.

The departure tax has not been increased since introduction

and is low by regional standards

At K30, the departure tax for Papua New Guinea, as compared to other jurisdictions is at the lower end of the range.

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Table 5. Comparison of Departure Tax in the Asia/Pacific Region.

Country Local Currency

Amount in Local

Currency

USD

Solomon Islands SI$ 40 5.20

New Zealand NZ$ 12.5 9.31

PNG Kina 30 11.05

Philippines (Airport Tax) Peso 550 12.39

Vanuatu Vatu 2500 24.59

Samoa Tala 65 26.62

Tonga P'anga 55 27.74

Australia (Passenger Movement Charge)

A$ 55 44.21

Fiji F$ 200 99.40

Source: Tax Revenue Secretariat compilation.


The rate of departure tax has not increased in almost 30 years and appears to be an obvious choice for adjustment. Such an adjustment could be made on an inflationary basis or by reference to the actual costs of providing specified services. The rate could easily be doubled and this would not be significantly out of step with other regional countries. However, it needs to be recognized that the departure tax will always only be a small component of total government revenues.

Once the amount of the tax is recalibrated, the real value of the tax could be maintained by automatically indexing the tax, in a similar way as is done for excise taxes. See page 14 of Issues Paper No 6.

Question 10: Would an increase to departure tax raise significant problems? How should a new rate be calculated?

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CHAPTER 5: ENVIRONMENTAL TAXES

Overview

Environmental challenges are increasing the pressure on governments to find ways to reduce environmental damages while minimizing harm to economic growth and development. Governments have a range of tools at their disposal, including regulations, information dissemination programs, innovation policies, environmental subsidies and environmental taxes. Taxes in particular will be our focus of discussion in this paper.

Many market activities lead to environmental impacts such as degradation of land, water and air. These impacts – often referred to as externalities or spillovers – can be influenced through tax arrangements designed to facilitate improved environmental outcomes. Taxes can directly address the failure of markets to take environmental impact into account by incorporating these impacts into prices. In turn, pricing which better reflects environmental spillovers assists consumers and businesses to make more rational choices about how best to reduce their environmental “footprint”. Some of the key

environmental issues that may need to be addressed could include:

- climate change and carbon emissions;

- air pollution from motor vehicles22;

- the use of non-renewable fuels23 and other resource use including

forestry and fisheries;

- environmental degradation from mining, industrial production,

agriculture, logging and similar activities; and,

- waste management.

Question 11: What are the priority environmental issues for PNG? Is an environmental tax approach the most effective mechanism to deal with these?

Taxes can be used to encourage behaviour change so that people reduce their use of resources or their contribution to pollution. However, tax options are not necessarily the best way to deal with all environmental issues and should be considered alongside other options.

22 See existing vehicle excise arrangements 23 The current fuel excise arrangements currently provide significant incentives for using diesel

rather than petrol. Diesel has worse air pollution impacts!

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Best practice suggests that environmental taxes not be used as a revenue raising mechanism but should be directed at improving outcomes. They are best at providing price signals to influence business and households to change their activities.24

Options for addressing environmental concerns

The main options for addressing environmental concerns include:

- Information and education campaigns;

- Direct regulation or implementation of standards;

- Grants subsidies or rebates;

- Market instruments including environmental taxes and tradeable

property rights.25

The choice of a particular option will depend on the nature of the problem to

be addressed and particularly the characteristics of the relevant market. In

examining this, the Henry review26 concluded that environment taxes should:

- not be used as a revenue measure but only to address specific

environmental issues;

- be integrated with the existing tax system;

- reflect the actual cost of environmental damage;

- not be used unless other options are more costly.

Climate Change

The Government is in the process of establishing the Climate Change and Green Growth Trust Fund (CCGGTF) which is expected to receive revenues from various carbon fees, taxes, levies and fines. The CCGGTF is intended to support a transition to a climate resilient green economy.27 Development of new environmental taxes to deal with climate change is a complex process and it should be undertaken in conjunction with the development of legislation to implement the CCGGTF and any other related policies.

24 ACT Taxation Review (2012), ACT Government, Canberra, p199 25 Australia’s Future Tax System (2009), Report to Treasurer, Canberra, p346 26 Australia’s Future Tax System (2009), Report to Treasurer, Canberra, p 353 27 OCCD submission to the Tax review

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Sustainable Transport and Fuel Use

Road use. One key issue for PNG would appear to be action to improve the sustainability of transport options. Traffic congestion is becoming an increasing issue in Port Moresby and other centres and this will only get more serious over time. One of the key issues is the state of road infrastructure and this requires additional funding – an effective tax system to generate revenue should be the starting point. This should not be considered as an

environmental tax but should rather be seen as a charge on road users (this is commonly referred to as a “road user charge”). This is most easily applied via the vehicle registration system.28

A longer term aim should be to implement effective road user charging – using tax and other fees – that adequately reflects the true cost of transport.

However, specific environmental taxes could be used to modify behaviours relating to vehicle selection and fuel use. The excise system currently provides a mechanism which could be used to implement more effective price signals for both of these objectives.

Vehicle Use. Vehicle excise is a common tax around the world and is usually directed towards promotion of particular types of vehicles through varying rates to provide a price incentive. Many countries have differential rates depending on engine displacement which is a proxy for other key policy objectives. These objectives include:

- fuel efficiency

- CO2 emissions, and

- impacts on road infrastructure.

Engine displacement is only a rough guide to fuel efficiency and emissions and many modern larger displacement engines perform better on these criteria than older smaller engines. There is an emerging trend towards using CO2 emissions as the basis for classifying vehicles for excise purposes. However, it should be noted that some countries have moved to a standards based system

28 In its submission to the Review, the National Roads Authority has recommended increasing

diesel excise to achieve this. (Diesel excise should be increased - see my comments on excise.) This reflects a problem with the hypothecation model – vehicle registration charges are currently hypothecated to NVIL whereas NRA receives part hypothecated diesel excise. Thus the NRA recommendation to achieve better road funding reflects the current funding arrangements and not necessarily the best policy approach.

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to improve fuel efficiency and emissions rather than depending on tax approaches.

Question 12: Is engine displacement, emissions or fuel efficiency the best approach for distinguishing between vehicles? Is a tax or standards approach the most effective?

The current PNG excise tariff contains separate items for various different vehicle types of vehicles but the current rates are the same across the different engine sizes, and only vary depending on whether the vehicle is new (60%) or second hand (80%). This appears to be designed to encourage the import of new vehicles over second hand. However, the final price differential is unlikely to be sufficient to effectively achieve this and in any case there are probably separate markets for new and second hand vehicles.

The National Research Institute has suggested banning the importation of vehicles more than 10 years old. This may make vehicle ownership unachievable (or at least more difficult) for some people but it would have a direct impact on the composition of the fleet over time leading to improvements in safety, fuel consumption and environmental outcomes. If a ban was implemented it would raise questions on the validity of the higher excise rate. It may also be necessary to provide a restricted exemption mechanism to allow for specialist vehicles of various sorts.

Question 13: Should some imports of motor vehicles be restricted on environmental and/or safety grounds? Is a differential tariff an effective way to limit such imports?

An environmental tax approach would apply different rates to the various engine sizes (or be based on other factors) and this could bring about changes to the composition of the overall fleet over time. For example, applying a lower rate for smaller engine capacities (or more fuel efficient vehicles) should encourage the purchase of more vehicles in that class at the expense of larger vehicles. However, despite the tariff distinguishing between different engine classes, the rates are all the same so this does not have any effect. It should also be noted that the registration fees use a similar approach.

Question 14: Should the tariff be used to influence the choice of vehicles imported?

In its submission to the review, The Office of Climate Change and Development (OCCD) has made recommended a K100 per annum gas guzzler levy for vehicles with a fuel consumption greater than 20 mpg. This would

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presumably be best implemented through the vehicle registration system but the proposed level of K100 seems far too small to have any appreciable impact. By way of comparison, the US has a gas guzzler levy on the sale of vehicles which varies from US$1000 to US$7000 depending on the fuel efficiency.29

Fuel Use. The use of fuels has a number of environmental and other economic impacts. Most countries apply excise to fuel use and while this is a longstanding tax its rationale is no longer clear. Historically, fuel taxes have been linked to road maintenance (see above) but now there is often an environmental element. In Europe, for example, motor fuels are subject to minimum tax rates along with a range of other energy products, including electricity, as part of an environmental response to the Kyoto protocol.30

The current excise rates for fuels distinguish between petrol, diesel, fuels oils and aviation fuels. The different rates for diesel and petrol cannot be justified on environmental grounds as diesel has a much greater impact on air quality due to higher levels of nitrogen oxide and particulate emissions than petrol. However, there may be other reasons for providing lower rates for some uses of diesel (see paper on Taxation of Motor Vehicle Use).

The OCCD has suggested a K0.10 per litre surcharge for fuels which are not designated as “clean”. This would best be implemented through the fuel excise arrangements. However, it would require a process to define criteria and assess fuels to determine which fuels should have a levy applied. Regulation of fuel standards may be a better approach.

Resources

Environmental taxes could be applied to the use of resources including minerals, petroleum, gas, forestry and fisheries. However, there are already existing systems including the export tax on logs and mineral royalties. There may be some merit in considering whether the rates currently applied to such commodities adequately reflects their economic value to PNG, including any environmental externalities.

Impacts of mining. There has been a history of significant environmental problems arising from mining in PNG (and elsewhere). This problem does

29 OECD (2006), Consumption Tax Trends, OECD, Paris, p78. 30 European Union, Council Directive 2003/96/EC of 27 October 2003 restructuring the

Community Framework for the taxation of energy products and electricity, accessed at http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:283:0051:0070:EN:PDF

http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2003:283:0051:0070:EN:PDF

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not seem amenable to a tax solution and direct regulation with appropriate compliance mechanisms would appear to be the best solution.

Question 15: Do the royalty/export tax arrangements for mining and logging adequately reflect environmental outcomes?

Views from the consultation

TRC received only two formal submissions including one from the Office of Climate Change and Development (OCCD) the National Research Institute (NRI). The latter’s submission was put together as a result of a Tax Symposium which was also cohosted by the Tax Review Committee in 2014.

The OCCD, as the lead coordinating body responsible for all climate change related policies and actions in Papua New Guinea, proposed for various carbon levy/taxes (environment taxes) to be imposed to promote ‘green development’ initiatives undertaken by the government. Three most important Environmental taxes proposed include;

1. Carbon taxes -

2. Emission taxes - imposed on Green House Gas (GHG) emission which

requires individual emitters to pay a fee, charge or tax for every tons of

greenhouse gas released into the atmosphere and,

3. Energy tax - is charged directly on the energy commodities.

Specific carbon taxes proposed are as follows;-

o K25 per person per visit carbon levy imposed on tourist accommodation guests

to offset energy use – to be levies on a sliding scale with a 0% of the levy for

facilities that are totally dependent upon fossil fuel for internal energy use and

have no energy or water conservation measure in place as verified by an

independent audit from a qualified and accredited auditor registered with the

Minister for Finance.

o K50 per person per visit carbon levy imposed on inbound international aircraft

passengers to offset greenhouse gas emissions during flight.

o K0.10 per liter carbon levy imposed on aircraft and ship bunker fuel and yacht

diesel fuel

o K100 per year “gas guzzler” levy on all vehicle that do not achieve at least 20

miles per gallon based on average fuel efficiency reported by the manufacturer

of the vehicle;

o K0.10 per liter for all motor fuel sold that is not designated as clean fuels by

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the Department of Environment and Conservation.

The submission from the PNG National Research Institute (NRI) states that PNG currently does not have environmental taxes specifically intended to correct externalities but there are a number of ad valorem excise duties, levies and fees that may have an environmental dimension. These are mainly in the transport and the natural resources sectors.

Details of the fees and charges will be discussed more in another issue paper

on Non-Tax Revenue which the tax review team is currently working on.

NRI in their submission recommended for “a need for the Government to devise

short-and medium term environment-related tax policies to conserve the environment

and to promote economic growth”.

They mentioned that the reason for such Government action is the pressure of

on the natural resources by PNGs economic and population growth. This is

equally true given the current trends of growth and development the country

is experiencing. However, any new policies should be subjected to further

analysis to ensure that they are relevant and or appropriate for PNG at

different stages of development.

At this stage of PNG’s development, NRI has theoretically ruled out carbon tax

given that PNG’s per capita emissions are very small as compared globally and

are not likely to grow rapidly. …’any benefits are likely to be outweighed by the

foregone opportunities to earn income for development’.

However, given PNG’s obligations to international forums to address climate

change, the NRI proposes for the following taxes in the following areas;-

1. Transport

- Proposes for an annual road tax at a flat rate

- Importation of old vehicle more than 10 years be banned and

alternatively environmental levy be imposed on importation of

used cars that would be proportional to the age of the car.

2. Pollution

- impose levy on producer’s plastic bags and bottles

- ban on importation of used refrigerators that uses

chlorofluorocarbons

3. Energy

- Subsidies on fuel should be gradually phased out to reduce burden

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on public purse

- Tax to be introduced on sales of incandescent light bulbs whilst

subsidize the sale of fluorescent light bulbs

- Tax exemptions on sale of solar water heaters, solar panel to

generate electricity

- Fuel excise tax based on carbon content as a medium to long term

measure.

4. Renewable natural resources

- Establishment of Payment for Ecosystem Service (PES) mechanism

all over PNG in Forest, Fisheries and Biodiversity

5. Institutional and implementation issues

- The need for public awareness and education and multi-

stakeholder collaboration on the design or these taxes and most

importantly the monitoring of its effectiveness and efficiency.


The Review has not been able to comprehensively deal with environmental taxation. However, there may be limited environmental objectives suitable for a taxation response. Other forms of regulation are likely to provide better outcomes.

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APPENDIX A. TYPES OF STAMP DUTY AND DUTY

AMOUNT

Conveyances or Transfers on the Sale of Real Property -

People who purchase real property (houses, land, land and improvements or commercial premises) located in Papua New Guinea must pay duty on that purchase.

Duty Amount. – Duty is calculated on the market value of the property.

Where the value does not exceed

K35,000.00

K5.00 or an amount equal to 2 per cent of

the value, whichever is the greater

Where the value exceeds K35,000.00 but

does not exceed K70,000.00

An amount equal to 3 per cent of the

value




value

Where the value exceeds K140,000.00 An amount equal to 5 per cent of the

value

Sales of apartments, etc under company title

People can also purchase shares which give a right of occupancy of a unit of real property such as a apartment, flat etc.

Duty amount; -


K35,000.00

K5.00 or an amount equal to 2 per cent

of the value, whichever is the greater

Where the value exceeds K35,000.00

but does not exceed K70,000.00


value

Where the value exceeds K70,000.00

but does not exceed K140,000.00


value

Where the value exceeds K140,000.00 An amount equal to 5 per cent of the

value

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Transfers of Marketable Securities

When acquiring marketable securities (shares, units and interests) that are

dutiable property in the PNG from another person, one must pay duty on that

purchase.

Duty amount

Transfer of marketable securities or rights to the issue of shares, and directions

as to the issue of allotment of shares, an amount equal to 1 per cent of the

value or K0.10 whichever is the greater

Leases or Agreements for Leases of Land and Goods

A lease includes any promise of, or arrangement for, a lease of land/goods in

the country, and includes any instrument whereby a right to use at or during

any time or times any land or goods in PNG.

Duty amount

A lease for up to 5 years

For the first K240.00 (or part thereof)

of the rent for the lease period

K5.00

For the reminder

An amount equal to 0.4 per cent of So much of the rent for the lease

period as exceeds K240.00

A lease for 5 years or more

For the first K240.00 (or part thereof)

of the rent for the lease period

K10.00

For the remainder

An amount equal to 1.0 per cent of So much of the rent for the lease

period as exceeds K240.00

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Deed of Gifts

ll deeds of gift, whether as a single instrument or as one of several instruments,

if combined, would constitute a deed of gift is liable for stamp duty. Deed of

gift is defined in the Act, basically a deed of gift is where any property is

given, allotted, transferred or conveyed for less than the full value of the

property.

Duty amount

Where the value of the gift does not

exceed K35,000.00

K5.00 or an amount equal to 2 per

cent of the value of the gift,

whichever is the greater

Where the value of the gift exceeds

K35,000.00 but does not exceed

K70,000.00


value of the gift



K140,000.00


value of the gift


K140,000.00


value of the gift

Deed of settlement

All deeds of settlement, whether a single instrument or one of several

instruments, if combined, would constitute a deed of settlement are liable to

stamp duty

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Duty amount

Where the value of the property in relation to which an instrument is a

deed of settlement- does not exceed

K35,000.00 K5.00 or an amount equal to 2 per

cent of the value, whichever is the

greater

exceeds K35,000.00 but does not exceed

K70,000.00

An amount equal to 3 per cent of

the value


K140,000.00

An amount equal to 4 per cent of

the value

exceeds K140,000.00 An amount equal to 5 per cent of

the value

Partitions or Divisions of Real property

Every agreement or other document which effects the partition or division of

real property in the country is chargeable with stamp duty under this heading

Duty amount


K35,000.00

K5.00 or an amount equal to 2 per cent of

the value of the gift, whichever is the

greater

Where the value exceeds


K70,000.00


value of the gift



K140,000.00


value of the gift


K140,000.00


value of the gift Duty is payable by the

parties, or any one or more of them.

Partitions or Divisions of the interest of lessees under leases of land in the

Country

Every agreement or other document which effects the partition or division of

any interest of a lessee under a lease relating to land in the country is

chargeable with stamp duty under this heading.

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Duty amount

K35,000.00 value of the gift, whichever is

the greater



An amount equal to 3 per cent

of the value of the gift





Where the value exceeds K140,000.00 An amount equal to 5 per cent


Transfer and Assignment of Leases of Land in the Country

All transfers and assignments of leases of land in the country are liable to

stamp duty under this item

Duty amount

Where the consideration does not consist of

or include money, marketable securities, or

other property

K25.00

Where the consideration does not consist of

or include money, marketable securities, or

other property and the value of the

consideration:- does not exceed K35,000.00

K5.00 or an amount equal to 2

per cent of the value,

whichever is the greater


K70,000.00


of the value


K140,000.00


of the value

exceeds K140,000.00 An amount equal to 5 per cent

of the value

Transfers of Mining and Petroleum Interests

Stamp Duty is charged on the transfers of Mining and Petroleum interests under the same head of charge that charges stamp duty on the transfers of real property.

The mining and petroleum industry is given concessional treatment in that there are concessions for:- Transfers of exploration licenses

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Duty amount

Where exploration licenses are not transferred for more than the historical cost of obtaining the mining information a concessional rate of K10,000.00 is charged, this designed to encourage mining and petroleum exploration in the country. If the transfer is for more than the historical cost of obtaining the mining information duty is charged at 2% on the excess.

Transfers of mining information

The duty on the transfer of mining information for both exploration and

development licenses is limited to K10,000.00, again this is designed to

encourage mining and petroleum exploration in the country.

Transfer of development licenses.

The stamp on the transfer of real property valued at over K140, 000, is 5% of

the value of the property However in the cases of development licenses this

amount is reduced to 2%. This concession is given as companies are more

likely to explore if they can realize any funds in more than one way i.e. If they

can sell their find to someone who can develop it. This hopefully will make

development more likely, the argument being that the full rate of 5% deterred

both exploration and development if the explorer cannot fund development

itself.

Stamp duty on LNG Projects

Stamp duty on transfers to restructure the ownership of the LNG project is

capped at K5, 000.00 in the following cases:-

Where transfers are between LNG Project Companies and their

affiliates and the transfer makes no change to the total company group

interest in the LNG Project;

Where transfers are between LNG Project Companies by operation of

the LNG Project Agreements;

Where the transfers are entered into between LNG Project Companies

and their affiliates prior to 31 December of the year which includes the

Offer License Transfer Date.

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Acquisition of Interests in Landholding Private Corporations

Betting Tickets

Stamp duty is payable on a betting ticket made out in respect of a bet as

follows:-

of an amount not exceeding K5.00 K0.50

of an amount exceeding K5.00 but not exceeding K10.00 K1.00




of an amount exceeding K100.00 K5.00

Lottery tickets

Contract splitting

Section 16A of the Act prevents the splitting of contracts splitting. The purpose

of the section is to basically ensure that the same duty is paid on transactions;

even if clients do more than one contract or transfer. The section achieves this

by adding together transactions that are really the same larger transaction or a

series of transactions that are really the one transaction

For the contracts/transfers to be added together as one contract, the following

factors need to be present:-

The contracts/transfers need to be between the same parties: or,

Between different parties, who are related persons (within the meaning

of related persons contained in Section 78B); and,

The transactions must occur within 12 months of each other

Date post:	21-Aug-2020
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