Corporate Tax News Issue 57 - January 2021

2021 Budget highlights and other Internal Revenue Commission protocol enforcements

The downturn in the world economy as a result of COVID-19 has had a profound impact on Papua New Guinea’s economic growth. The Internal Revenue Commission (IRC) has introduced some short-term tax administrative measures, such as delayed payment timetables, to assist businesses with their cash flow situation, especially during lockdown and the state of emergency (SOE) period.

With the 2021 Budget being framed amidst economic uncertainties brought by the pandemic, the focus is on supporting small-medium enterprises (SMEs), enforcing greater compliance, gearing towards a more modern and efficient tax system, and exploring a future levy on banking and telecommunications sectors.

The tax amendments in the 2021 budget include the following:

  • Modifications to Small Business Taxation (SBT) regime

A new tax regime was introduced in the 2020 Budget, with more simplified accounting and tax rules for individuals conducting business in PNG, subject to certain conditions. The amendments this year centred on correcting thresholds and tax payable under micro-businesses and small businesses:


Annual turnover

Tax due

Micro business

less than PGK 60,000

Fixed amount of PGK 250 per year

Small business

more than PGK 60,000 but less than PGK 250,000

PGK 62.50 plus 2% of turnover above PGK 15,000 per quarter

An anti-avoidance measure is also introduced to discourage employees and employers from converting employment relationships into independent contractor arrangements to pay SBT rather than Salary and Wages Tax (SWT).

The SBT regime is expected to come into effect in 2021.

  • Alignment of Provisional Instalment Tax due dates for companies with fiscal year end

For companies with a fiscal year end, due dates on Provisional Tax instalments have now been adjusted to 120 days, 210 days and 300 days from the fiscal year end.

  • Speeding timing of remittance of Prescribed Royalties Withholding Tax (PRWT)

Currently, developers make royalty payments directly to the relevant regulator, who remits tax to the IRC. This process can take time, and has delayed the collection of PRWT. The obligation to deduct and remit PRWT has now been changed from the regulator to the resource developer.

  • Increase in Counter Clearance Threshold

The threshold for the current Customs Counter Clearance (CCC) will increase from PGK 1,000 to PGK 5,000. Cargoes that has a value of PGK 5,000 and less will be cleared at the counter, while cargoes over PGK 5,000 go through the import entry for clearance. The changes will encourage SME and individuals to declare at the counter goods valued below PGK 5,000 at low cost. This is consistent with the Government’s plan to support growth of local SMEs into the future.

  • Increase in Customs Penalties

There would be a general increase in Customs penalty fees under the Custom Act 1951, to deter reoccurring offences and boost voluntary compliance of Customs process and procedures. A new penalty provision is also introduced specifically to deter smuggling of tobacco products into the PNG border.

Other protocol enforcements

  • Withholding goods and services tax (GST) Notice

In its media release on 6 August 2020, the IRC announced the implementation of the withholding goods and GST protocols called “Section 65A notice” under the GST Act of 2003. The IRC later issued Taxation Circular 2020/2 to support the media announcement.

In the new protocols, the IRC will issue a notice to customers or recipients of the goods and services where they will be directed to withhold 10% GST charged by the suppliers on the sale of goods and services, and remit the GST directly to the IRC. The initiative is aimed at reducing the GST tax gap or the non-compliance of suppliers to remit the GST to the IRC. The project will be rolled out first to Government departments including SOEs, with the IRC adding that Government contractors are beneficiaries of taxpayers’ funds and, hence, should be the first to pay their taxes.

Persons or recipients of the Section 65A notice will be liable to pay penalties up to PGK 5,000 for failure to comply with the notice. Penal provisions also include possible prosecution.

  • Electronic lodgement of Application for COC

With a view to reducing incidences of fraud on Certificates of Compliance (COC), the IRC introduced new measures in obtaining a COC:

  • E-lodgements – starting 1 January 2021, all COC applications are required to be submitted electronically through the designated email of IRC;
  • Fast service for compliant taxpayers – compliant taxpayers will expect their COCs to be processed and emailed to them the same day or the next day;
  • Outstanding compliance addressed - COC Applicants with outstanding compliance issues will be referred to the Debt & Lodgement Enforcement or Taxpayer Audit divisions for recovery;
  • Dedicated virtual COC team - COC applications processing is now centralised, and a virtual dedicated COC Processing Team has been established. Their role is to process COCs on a daily basis, with no physical interaction with taxpayers.

Jean Mendoza

Evangeline Madriaga