October 2022

Increased tax-free threshold for SWT ends 31 December 2022

Regular Pulse readers will recall the PNG Government’s “relief measure” amendment to the Income Tax (Salary or Wages Tax) (Rates) Act, increasing the tax-free threshold from K12,500 to K17,500. The increased threshold means the tax rate of 22 toea for each Kina is only paid after the employee’s annual income exceeds K17,500.  And in fortnightly terms, an employee earning at least K673 per fortnight is having their tax bill reduced by K42 per fortnight.  

However, importantly the duration of the measure was only seven months (effective from 1 June 2022 to 31 December 2022).  Hence, from 1 January 2023 onwards, the tax-free threshold will revert back to K12,500, unless further revisions are included in the next budget. Payroll managers will need to note this in their diaries and be prepared to update their system accordingly. For those that may not have been able to introduce the increased threshold in time for the 1 June 2022 start date, consideration should be given as to how to address this potential over withholding. 

Budget time approaching 

PNG’s parliament recently went into recess until the next sitting, planned for the week commencing 21 November. The next sitting will include the presentation of the 2023 Budget and marks the traditional session for the announcement of any tax changes. Based on the MYEFO and Supplementary budget, the Budget 2023 will be seeking to address growing concerns with respect to inflation, the impacts of increases in cost of living, and increasing demands for spending in the core areas of health, law and order, and education - and all in an environment that sees significant challenges to global growth. While revenue in 2022 has been boosted through collections from mining and petroleum companies (supported by higher than expected commodity prices), a similar uplift for 2023 is far from certain, and collections from other taxes have been below the level predicted for 2022, with increasing downside risks. PwC plans to revert to our historical norm and present our Budget Breakfast in the morning following the budget being brought down. After two years in a virtual environment, this year is planned to be back to a live event.

It is notoriously difficult to predict the revenue raising elements that may feature in PNG’ budget, however, it is expected that the major tax reform will be the introduction of the new income tax act - although the effective date is likely to be deferred to 2024. Calls for other tax reforms have been relatively muted, although there is always the possibility of a surprise initiative such as the dominant market player levy imposed on the banking and telecoms industry in 2022 However, each year the national budget does flag changes that will or may be made in future budgets. Some of these changes which may be in the 2023 budget include:  

• continuing the temporary increase to the tax free threshold for salary and wages tax

• changing the tax clearance certificate process, so that while the IRC retains administration of TCCs, the certificates will be 'system-generated' and issued directly to banks. 

• further changes to the Infrastructure Tax Credit Scheme  

• changing the requirement to pay salary or wages tax (SWT) on a monthly basis to fortnightly. Currently employers have until the seventh of the month to remit to the IRC the SWT it has withheld from employees’ salaries and wages paid in the prior month.  HR managers may need to check their current payroll system and whether it is equipped to handle such a change.  

• further amending tariffs including implementation of tariffs on imported refined petroleum products.

IRC awareness reaches new levels and new media 

The IRC has been very clear in making awareness campaigns a priority, with particular focus on provincial visits and significant resources being deployed to support the Small Business Tax regime. This month has seen this continue with a four day training and awareness event run in Port Moresby and further regional campaigns. The Commissioner General has also faced the media through using the forum of talk back radio to further promote the IRC’s messages. 

It is fair to say that businesses operating throughout the country will be less likely to argue ignorance of their compliance obligations when interacting with the IRC in the future. 

Pacific region addressed in Australia’s Federal Budget  

On Tuesday 25 October, the Treasurer, the Honourable Dr Jim Chalmers MP handed down the Australian Federal Government's 2022–23 October Budget. The budget contained a number of investment measures relevant to the Pacific region, including: 

• $900 million over four years to increase support to Pacific nations’ development and resilience.
  

• More than $147 million over four years to advance Pacific security and engagement priorities.

• Increasing funding for the Department of Foreign Affairs and Trade (DFAT) to support the development of key economic sectors. 

• More financial support for infrastructure investment through the Australian Infrastructure Financing Facility for the Pacific. 

IRC encouraging digital uptake 

The IRC has been progressing its digital strategy to enable interaction with taxpayers to be streamlined, robust, and not to rely on queuing up in person to make lodgement and payments. The value of this continued strategy was evident when earlier this month, employees of various government agencies were surprised to find their office building had been shuttered by the landlord due to non-payment of rent. Agencies affected included the Departments of Finance, Treasury, Lands, and National Planning, and the Internal Revenue Commission (IRC). The payment obligation did not fall with the IRC as Commissioner Sam Koim explained to the media. Importantly, the IRC was able to point out that despite the closure of the main IRC office for three days, lodgements and payments could continue through their digital channels. Electronic payment options and more recently the introduction of myIRC continues to promote electronic lodgements and payments. Taxpayers should be aware that these lodgement channels are available and will become increasingly important for interactions with the IRC. 

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