The 2017 Papua New Guinea National Budget was presented on 1 November 2016 by the Minister for Treasury, the Hon. Patrick Pruaitch, CMG, MP. The theme of the 2017 National Budget is “Responsible Fiscal Consolidation for Future Growth and Development” and is set at K13.3bn against projected revenue of K11.5bn. Revenue is comprised of K9.18 billion in tax, K1.04 billion in grants and K1.25 billion from other sources of revenue. This brings the budget deficit for 2017 in at an estimated 2.5% of GDP or K1.8bn.
There have been some trend shifts in the projected allocations, and it is noted that for the second consecutive year the health and education sectors are projected to receive smaller slices of the pie, while at the same time the administration sector allocation will increase to 20% of the expenditure budget, which includes facilitation of the 2017 general elections and hosting of the 2018 APEC Summit. In real terms the spending against key development focus areas has continued to decrease over the past few years.
Despite the 2017 Budget being the last of the current Government’s term, it is probably the most difficult it has faced. The reduction of revenue streams means the Government sectors will need to do more with less, and much of the success of the current budget will come down to how well structural and operational reforms are implemented and adhered to in the lead up to the next election.
The 2017 Budget continues to provide funding for economic and social development programs while at the same time stressing that priority will be given to those projects that are ongoing. In this fifth budget by the current government, ahead of the 2017 General Elections, we are starting to see the introduction of matters included in the tax reform review with nine changes adopted. Several key changes that have been mooted were not adopted, such as GST increases and capital gains tax introduction.
The budget tax measures do not contain any new taxes but do increase or modify a number of taxes. The proposed amendments are intended to simplify and increase the tax base as well as encouraging compliance. A number of the announced changes relate to recommendations made by the Tax Review Committee in October 2015. The PNG Government intends to continue reviewing the recommendations in 2017 to introduce reforms for implementation in 2018 and beyond. In particular the Government will assess the recommendations relating to mining and petroleum taxation, taxation incentives, capital gains taxation and tax administration. This will also include a tariff reduction program and non-tax fees and charges.
Key tax changes that were announced include (but are not limited to):
- Foreign Contractor Withholding Tax (FCWT) rate increased from 12% to 15% and removal of option to lodge return;
- Standardised rate for dividends corporate tax, and interest across all sectors of 15% from 1 Jan 2017
- Additional Profits Tax (APT) will be 30% and apply to gas, mining and petroleum sectors (unless they have a fiscal stabilisation arrangement in place).
- OECD recommendations on Base Erosion and Profit Shifting (BEPS) regarding filing country-by-country reports will apply from 1 Jan 2017.
- Excise increases on alcohol and tobacco to apply from 1 Dec 2016 and 1 Jan 2017 respectively.
- From 1 January 2017 increase in departure tax from PGK 30 to PGK 114
- Redistribute gross profits from gaming machines from 1 January 2017 such that the Government’s share increases from 46% to 55%, the Community Benefit Fund’s share reduces from 14% to 10% and the permit holders’ share reduces to 20% from 25%.
Full details of the 2017 Papua New Guinea National Budget speech can be viewed here.
Hanrick Curran has extensive experience in the PNG and Asia Pacific Region having advised mining, government, semi government and private enterprise over the last 20 years. Please contact Partner Peter Maletz in Brisbane on 07 3218 3900 or Cairns on 07 4052 7524 to discuss the impact of the National Budget changes on your business operations in PNG.
Please note that this publication is intended to provide a general summary and should not be relied upon as a substitute for personal advice.