- Written by Dr. Francis Odhuno, Program Leader and Senior Research Fellow, Economic Policy Research Program, PNGNRI Dr. Francis Odhuno, Program Leader and Senior Research Fellow, Economic Policy Research Program, PNGNRI
“Putting money in the pockets of our people” has become a hallmark of the Papua New Guinea (PNG) Government’s promise of empowering its people. So it began to prompt anxiety when the Govrnment began to prepare the country’s economic stumulus package in response to Coronavirus (COVID-19) pandemic.
As part of the Government’s economic response to COVID-19 pandemic, the Internal Revenue Commission (IRC) announced tax administration measures to mitigate the COVID-19 economic crisis. IRC was convinced that these measures were sufficient to “keep the country’s taxpaying community’s productive capacity intact as much as possible”. One thing which is unique about IRC’ss economic stimulus packages is that it contains no changes to corporate or personal income tax rates.
No tax relief for salary and wage earners
What is disconcerting to salary and wage earners is that IRC’s economic stimulus package does not offer any relief to increase disposable income to the people of PNG. The effect of COVID-19 pandemic on the people and the formal and informal economy are devastating. The lockdowns, movement control and the resulting supply chain disruptions means that the economic activities in transportation, retail trade, leisure, hospitality, schools, sports and recreation have been battered.
To the salary and wage earners, the COVID-19 pandemic is not only a public health problem. The COVID-19 pandemic has also become a strain on their personal finances. The countless media (print, online, audio and visual) reports about family conflict events create the impression that COVID-19 pandemic may be adding pressure on salary and wage earners’ household responsibilities.
In fact, the salary and wage earner could be the ones looking after their extended families, some of whom may have lost their jobs, thanks to the pandemic.
Government expects lower revenue from tax
With people losing their jobs, the Government expect lower personal income tax and Goods and Services Tax (GST) collections. The Government may also be expecting less from corporate income tax collections. However, it still expects tax revenue to steadily increase from the estimated end-2019 level of K13.02 billion to K16.46 billion by 2022. The Mid Year Economic and Fiscal Outlook Report is still in the works, so it is not clear at this time if these estimates have been revised downwards.
Still, to realise this increasing trend in tax revenue, the 2020 Budget targeted increasing the share of personal income tax in total income and profits tax from 49.3% in 2019 Supplementary Budget to 51.5% in 2020. The big share of personal income tax is not because salaries and wages in PNG are high or increasing. Neither is it because the level of formal employment is high. In a country of about 8 million people only about 300,000 people pay salaries and wages tax.
Taxpayers may be disappointed with IRC’s economic stimulus package
So, individual taxpayers must have been disappointed when the IRC economic stimulus package did not propose any reduction in personal income tax rates. These measures were the subject of heavy speculation.
In 2015, there were submissions to the Tax Review that simultaneous adjustments to marginal tax rate and tax-free threshold would be the best mechanism to give tax relief. Then in 2017 the then O’Neil-Deon Government, in its Alotau Accord II blue print, promised to lower personal income tax rates.
None of the Marape-Steven Government’s ‘smart, innovative and caring economic stimulus package’ in response to the COVID-19 crisis is targeted at the individual and household levels.
Salary and wage earners may have been expecting: 100% tax relief for personal gross fortnight salary or wage income of up to K700.00; a reduction of top personal income (salary and wage) tax rate from 42% to 30%; and a reduction of GST rate from 10% to 8%.
This article was first published in the Post-Courier’s 5 August 2020 edition and on its website’s commentaries and features page.