December 2019

Salary and Wages Tax amnesty period

The Commissioner General of the Internal Revenue Commission has announced a three-month amnesty period commencing 1 January 2020 which allows taxpayers to lodge and pay outstanding Salary and Wages Tax lodgments and/or liabilities with full remission of any corresponding penalties. As a precondition to the amnesty, all returns must be filed up to and including for December 2019.

Additionally, the Commissioner General has also announced that taxpayers who have an outstanding penalty on their SWT account prior to the announcement of the amnesty may have 90% of the penalty remitted where 10% of the penalty is paid during the amnesty period. We understand that this also includes remittance of penalties related to SWT liabilities that may have arisen due to the IRC electing not to process GST credit transfers lodged prior to 24 September 2019.

2020 Budget passed

A week after being tabled in parliament, the 2020 Budget has been passed. A look at our Budget night publication here provides the background to a budget that was about resetting expectations. From a taxation perspective, there were changes to the import duties and excise regime, export taxes on logs, and a number of changes to the Income Tax Act.

The general emphasis was on continued revenue raising particularly with respect to the increases in duties and excise. The changes in tobacco and alcohol excises have reversed the position of the budget from last year during which the levels of excise were frozen in order to support local producers and limit the impact of smuggled or counterfeit products in these areas.

The most significant changes to the Income Tax Act are each dealt with below in more detail.

Tax Act amendment issues

Legislative amendments impacting on a number of different taxation regimes were passed with the 2020 Budget, although many of them with drafting inconsistent with policy announcements, including:

• Tax Losses: Treasury indicated it was passing amendments to clarify that losses incurred prior to 31 December 2018 were entitled to be deducted (subject to satisfying the loss recoupment tests) until 31 December 2025 for non-resource companies. Unfortunately, the legislative amendments contained drafting errors which may be read in a manner that eliminates the ability to utilise the losses altogether - however this interpretation would be inconsistent with the 2019 Budget announcement.
  
  
• Thin capitalisation changes: The 2020 Budget legislative amendments also immediately reduces the thin capitalisation debt to equity ratio for resources companies from 3:1 to 2:1. We understand that the intention was for this reduction to apply from income years commencing after 1 January 2021. The absence of this clarification on the date of entry into force from the provisions means that taxpayers are not afforded a period for which to transition to a lower debt to equity ratio, and that the changes apply retrospectively.
  
  
• Provisional and advance payment tax changes: Provisions were passed to allow taxpayers with substituted accounting periods to make provisional and advance payment taxes in periods that more appropriately aligned with their income years. The drafting of the provisions actually brings forward all payments of provisional tax and advance payment tax to periods ending 90, 180 and 270 days after the commencement of their income years. We are advised that this should actually reflect 120, 210 and 300 days after commencement of an income year to align with the existing provisional tax payment dates.

The IRC has advised us that it has proposed further amendments to correct these matters, however these will not amend the law until parliament resumes in 2020. In the meantime the IRC has advised they will consider issuing guidance that their administrative approach to these areas will mirror the policy intent.

Small and medium enterprise tax regime

The 2020 Budget also introduced a new SME taxation regime that simplified the taxation requirements for certain SMEs, with the option of a turnover-based tax at a rate of 2% for businesses with a turnover up to the GST registration threshold of K250,000 per annum. For businesses with a turnover below K50,000, they can opt for a flat rate tax of just K400.  However, despite the budget papers explaining that this amendment was to support SME business generally, the new tax regime applies only to individuals (or sole proprietorships). Companies continue to be subject to the existing tax requirements regardless of whether they are within the K250,000 turnover threshold.

The 2020 Budget also allocated some K200 million to support investment in e-commerce training for Micro SME's and provide platforms to expand and formalize the companies in this sector. While increased support and funding for the SME sector and simplified taxation are generally in line with the PNG SME Policy and SME Master Plan that were launched in 2016, there continues to be some significant mismatches and imbalances when it comes to defining and agreeing what constitutes an SME. The tax threshold for the application of the simplified regime is significantly lower than the turnover levels used in the SME Policy.

If you would like to know more about these recent developments or have any other questions, please get in touch with your usual PwC contact.