IRC Commences Comprehensive Audits

The Internal Revenue Commission (IRC) announced the commencement of a comprehensive tax audit into two major mining companies operating in Papua New Guinea.

Commissioner General Sam Koim made the announcement on Thursday 22 December 2022. 

He said, “We have been profiling these two companies (names withheld for confidentiality reasons) for over a year. The letters formally notifying them of the audit were signed and served today.

“We understand that mining is a capital-intensive operation and requires significant investment. Be that as it may, our mineral resources are finite and non-renewable, and we will run out one day. The Government needs to extract a substantial proportion of the value of the resources extracted for the benefit of its citizens, present and the future.”

IRC states that this involves the design and implementation of an appropriate contractual and fiscal system. The one we have is a concessionary fiscal regime where, amongst others, mining companies pay taxes if they make a profit. The regime creates higher incentives for operators to inflate their costs. 

Koim said, “That is the reason why the Marape Government is driving the ‘Take back PNG’ agenda to get more from our natural resources’ endowment. Whilst the Government is negotiating better deals for our people in the new mines, IRC has a responsibility to ensure that the existing mines are paying their fair share of taxes. IRC’s role in giving effect to the ‘Take Back PNG’ agenda is to make sure that every taxpayer, and in this particular case the mining companies, pay their fair share of taxes under the existing law.”

PNG has a self-assessment tax regime where the taxpayer assesses its own liability, declare that on oath to the tax office and pays on time. That tax regime predominantly exists all over the world where most of these multi-national corporations operate. If the tax office considers that the taxpayer has made false declarations or substantially reduced the liability without justification, the tax office audits that taxpayer with a view to amending the assessment. 

Koim assures taxpayers, “We are not introducing a new law but simply enforcing the existing laws. Entities in the extractive sector had not been scrutinized by the tax office, assuming that they were always doing the right thing. The patterns of abuse are worrying hence, we are taking these compliance audits. Abusive transfer pricing and tax treatment of stripping costs, are amongst the areas we are looking into.”

He added, “Whilst the mineral prices continue to soar and the production has increased substantially, the Corporate Income Taxes continue to be miniscule. Some even don’t declare of pay any CIT at all for a number of years.”

“Through these audits, we intend to establish whether the taxes they’ve declared and paid are the right amounts. We have completed audit on one mining company, and we are now commencing the two. We are profiling two others. We are also profiling a few oil and gas companies for potential audit.”

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