SIGNIFICANT DEVELOPMENTS
The government appointed Sir Nagora Bogan, a former Commissioner General of Internal Revenue, to conduct a review of Papua New Guinea’s income tax system. This review was completed in October 2000 and saw the introduction of some significant improvements to the tax system; these largely affected the treatment of corporate entities.
TERRITORIALITY AND RESIDENCE
Residents of Papua New Guinea are taxable on their worldwide income. However, a deduction for losses incurred by residents from a source outside Papua New Guinea is allowed only against foreign-source income and not against Papua New Guinea-source income.
Residents of Papua New Guinea are persons who reside in Papua New Guinea and satisfy either of two conditions.
1. Their domicile is in Papua New Guinea, unless the Commissioner General is satisfied that their permanent place of abode is outside Papua New Guinea; or
2. They have actually been in Papua New Guinea, continuously or
intermittently, during more than one-half of the year of income, unless the Commissioner General is satisfied that their usual place of abode is outside Papua New Guinea and that they do not intend taking up residence in Papua New Guinea.
Nonresidents of Papua New Guinea are subject to tax only on their income from sources in Papua New Guinea.
Persons coming to Papua New Guinea to take up a contract of employment would be regarded as residents even if they are to be in the country for a short term of, say, two to four years. Citizenship does not determine liability to Papua New Guinea income tax. Under Papua New Guinea law, the source of remuneration is generally considered to be the place where the
services are performed, although this is not necessarily the sole test. Thus, remuneration for services rendered in Papua New Guinea would be taxable to both residents and nonresidents, wherever received.
Double taxation treaties have been effected with Australia, Canada, the People’s Republic of China, Fiji, the Republic of Korea, Malaysia, Singapore, and the United Kingdom. In certain circumstances, these treaties exempt remuneration for services rendered in Papua New Guinea by nonresidents from PNG tax.
GROSS INCOME
Employee gross income/Tax is payable by salary or wage earners on salary or wage income on a fortnightly basis; it is a first and final tax. Gross income of an employee subject to the fortnightly salary or wages tax includes cash remuneration, commissions, bonus remuneration of any kind, and allowances (whether paid in cash or otherwise).
Employee benefits are generally taxable in the hands of the employee. Benefits or allowances for housing and motor vehicles are taxed according to prescribed taxable values. In general, all other allowances or benefits paid to employees are taxed in full. Airfares from the place of engagement to Papua New Guinea for the taxpayer and family, as well as annual-leave return airfares from Papua New Guinea to the place of engagement, are not taxed, provided they are not paid as a cash allowance or converted to cash.
When an employee is provided with additional leave fares in a year, the cost is generally taxable as an employee benefit.
Capital gains and investment income/The types of capital gain-related income subject to tax are listed below.
1. Profit on the sale of property acquired for the purpose of profit making by sale or from the carrying out of any profit-making undertaking or scheme.
2. Dividends, other than certain types of stock dividends, received from a company out of capital profits are taxable in the shareholder’s hands.Residents are subject to tax on investment income from all sources, including interest, dividends rents, royalties, and annuities.Nonresident individuals are subject to withholding tax on dividends at
the rate of 17% (15% for treaty country residents with the exception of Australia and U.K. residents). Dividends paid by mining companies attract a rate of 10%. Royalties are subject to withholding tax at 10% or, where the recipient is associated with the payer, at 30%. A withholding tax of 15% is payable on interest (subject to certain exceptions). The withholding
tax applies whether the recipient is a resident or a nonresident. Most of PNG’s double taxation agreements limit the rate of withholding tax on interest to 10%.
DEDUCTIONS
Business deductions/In calculating the tax payable on salary or wage income for a fortnight period, allowance is made for tax rebates for dependents and for an assumed (automatic) deduction from gross salary or wage income of K200 per annum for expenditures incurred by employees in the course of employment. Employees who incur revenue expenditure in a calendar year in the course of deriving salary or wage income are entitled
to apply to the Commissioner General for a rebate of tax with respect to that expenditure for the calendar year. The tax rebate is equivalent to 2
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