PNG Relying Heavily on Personal Income Tax

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by Meriba Tulo – EM TV News, Port Moresby

Papua New Guinea’s heavy reliance on income from Personal Income Tax (PIT) has been identified as a reason why many do not enter formal employment.

This is one of a key number of findings from a report into the country’s taxation regime, compiled by the PNG Taxation Review Committee.

The Committee, led by Sir Nagora Bogan, recently presented its final report to Treasurer, Patrick Pruaitch.

The report found that “PNG has a large subsistence and informal sector which currently pays 10 per cent GST, whilst the burden of both GST and income tax is borne by salary and wage earners, or sole traders in the formal economy – approximately 7 per cent of the population”.

In light of the heavy reliance on PIT, the committee has recommended that the following be done:

•             Raising the Tax Free Threshold from the current level of K10,000 to K15,000, and gradually to K20,000 – aimed at removing the large numbers of low paid employees from the tax system, and

•             Reduce Marginal Rates –the marginal tax rate of 22 per cent should be reduced to 20 per cent, and the current tax rate of 30 per cent charged on employees earning between K18,001 and K33,000.

While the reduction in income tax may be welcomed by many in the formal employment sector – it is important to note that revenue from other taxation components may increase to ensure the government revenues remain largely unaffected.

One such component is the Goods and Services Tax.

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