It is time to go after businesses and individuals avoiding tax, says Minister for Treasury, Ian Ling-Stuckey.
“We have many great businesses in PNG. Some are new and small. Some have been in PNG for decades and are large,” he said.
“I know that there are thousands of great business leaders in this country who ensure their firms invest in our country, who create jobs, who often train our people, who pay their taxes. I want to ensure that those types of businesses believe that the government creates the framework for them to thrive and survive.
“There are also businesses who do not pay their fair share. They operate in the black economy. They operate with cash and fake invoices. They hide their true levels of imports and true levels of profits. I understand that many of them do not use legal means to minimise their tax. But I have no time for businesses that act illegally and avoid their fair share of tax. It is time for a tax crackdown on the black economy.
“Legitimate businesses in PNG are tired of having a competitor down the road getting an unfair advantage because they do not pay their tax. Every business person I know have their own stories of new firms coming into the market and operating just in cash, and certainly not paying their company tax. They often even collect GST from customers, and then keep the money themselves.
“Sometimes they collect income tax from their employees, but then they keep that tax and don’t even give it to the IRC. Of course, it is more likely they just pay their work forces in cash, and well below the legal minimum wage. We know of the reports of shipping containers filled with pirated soft drinks and cigarettes that do not pay duty that hurt local manufacturers. We know of fake values being placed on log exports. This has to stop.
“Getting more firms to pay their legal tax obligations has been talked about for years. We’ve tried the conventional ways of supporting our revenue collection agencies. We’ve made them statutory authorities. We’ve tripled their wage funds and allowed them to hire more staff on better pay. However, we are still not getting the results we wanted. With the biggest budget deficit in PNG’s history, we must do something different.
“Today I announce a major policy initiative for an ‘incentive compliance’ system to crack down on tax dodgers. This initiative will be developed by an inter-agency taskforce, including private sector representatives.
“The aim is to level the playing field. If you are a good, law abiding business, you have nothing to fear. We are going for the firms down your street that are not paying their tax. If you are an importer that pays your excise, you have nothing to fear. We are going for those who bring in shipping containers that hide their true contents and true values.
“The aim is for PNG to introduce a new system of compliance enforcement. This will be an ‘incentives compliance system. Citizens in our country will be given an incentive to inform on tax dodgers. If you know of someone avoiding tax, if you can provide the evidence that leads to an increase in tax, then you will be paid for the information you provided. The government agencies such as the IRC, Customs and the Police that help capture and provide the evidence to get taxes collected.
“There are likely to be several stages to this reform. The first sweep will focus on those firms identified as doing business but which are paying no or little tax. The second sweep will become more targeted at those firms that are clearly under-reporting on their GST, excise and export taxes. These are the easiest to measure so the gains to revenue can be more easily measured, and the incentive payment easier to calculate.
“Then targeting those firms not making their personal income tax payments. Then those not making their company tax payments. The third major sweep will then likely cover issues of under-reporting of taxable income.
“An amnesty may be considered for those firms that join the tax system before the new arrangements come into force. So if you are currently avoiding tax, I suggest you very quickly register for tax and get a tax number, walk down to the bank and open an account, and then start making payments to the tax office. If there are substantial tax payments being made, then your firm is likely to miss the first compliance sweep through the new incentives system.
“The exact nature and level of payment will be determined by the taskforce. My aim is to get growth going again by levelling the playing field. But I also need to collect much more revenue to help close the massive K4.6 billion cash deficit in this budget. An early figure that I’ve suggested to the taskforce to consider is that up to 10 percent of the additional tax and excises collected is available as an ‘incentive compliance’ payment. Half of this could go to the individual or individuals that report on the firm. The other half could be provided as additional funding to the organisations involved in collecting the additional tax.
“For example, let us say that there is a shipping container filled with imported cigarettes where no tax was being paid. Let’s say there was a million Kina in avoided cigarette excise. Let us say that this missing one million Kina is actually then collected. K100,000 would then be available for ‘incentive compliance’ payments. For the person who accurately reports the shipment, they could be eligible for K50,000.
“We know that such a person could be taking significant risks, so there will be an informant, whistle-blower scheme which will involve protections for such people. The operation is likely to involve the police and customs to raid the container of illegal cigarettes. These agencies could share the other K50,000 in ‘incentive compliance’ payments.
“The inter-agency taskforce will include private sector representatives. We know that the best information on what is really going on in parts of the illegal business sector is held by the legal business sector. They see what their competitors who are not paying tax are doing. It will access the services of local and international intelligence agencies as required.
“Today marks 100 days since becoming Treasurer. 100 days of action, not a 100 day plan. On day 100, we will pass a landmark budget with a clear pathway forward out of the economic hole, a landmark budget which combines budget repair with a clear pathway forward. A budget which includes very major policy announcements to take forward our country such as the visionary PNG connect program, the labour mobility program, the affordable education program, the SME simplified tax program, the program to reform our State Owned Enterprises to deliver more reliable services.
“Today, we will see the clearing of government arrears to Pacific Power – the end of the legacy of unpaid power bills leading to load shedding around the country. And now, on day 100, we announce the start of the process to level the business playing field, to close down the cash economy, to have all of us contributing to the welfare of the nation.
“I look forward to delivering more, and then more, and then more actions to Take Back PNG,” stated Treasurer Ling-Stuckey.