Tag Archives: tax concessions

Extractive Industry Giving Little Yet Enjoying Good Tax Concessions

“the relatively meagre assistance allocated to the village communities they have displaced is quite frankly shameful”

Frankiy Kapin | Post Courier | May 31, 2018

A company owned by mine site landowners of Bulolo district in Morobe province has accused the highly lucrative extractive industry of PNG of giving very little while enjoying the generous tax concessions offered by the government.

General manager of NKW Holdings Limited David Stewart said the extractive industry enjoys generous tax concessions, yet it is providing very minimal benefits to local communities.

The NKW is the umbrella company of the three Hidden Valley mine landowner investment companies of Nauti Investment Ltd, Kwembu Investment Ltd and Winima Investment Ltd in Wau, Bulolo district of Morobe province.

NKW owns almost K90 million in assets and employs approximately 17 expatriates and 500 national staff.

In the last six months, NKW has paid in excess of K40 million as goods and services tax (GST) on every kina spend.

“It is fair to say whilst there is considerable press devoted to the economic benefits of large mine operations and the small community programs they initiate, the relatively meagre assistance allocated to the village communities they have displaced is quite frankly shameful.

“At less than two per cent of revenue is hardly an equitable distribution of benefits,” Mr Stewart said.

He said evidence suggests that benefits to local communities that own the mine lands are minimized or watered down over time.

He said the constitutional landowners in PNG bear the cost of having the mines on their land but revenues will generally revert to the national government.

Mr Stewart said the NKW recognises that the mine has a finite life and generally do not develop the communities that own the land.

“If it was genuinely otherwise; the education and health standards in affected communities would be considerably higher. To quote a former Australian Prime Minister, “the streets should be paved with gold,” he said.

He said if they don’t develop sustainable businesses that will continue after the mine closure as the landowner group then they will have failed their duty.

As part of the company’s sustainable diversification program, NKW Fresh was established in 2014.

Advertisements

Leave a comment

Filed under Financial returns, Papua New Guinea

Transparency Initiative report calls for improved systems in extractive sector in Papua New Guinea

Sources of revenue from extractive sector to government. Source: EITI

Business Advantage | EMTV | 4 April 2018

The 2016 Papua New Guinea Extractive Industries Transparency Initiative report has found that improvements are being made to registry and payment systems in Papua New Guinea, but more needs to be done. It notes that budgeting for government revenues remains difficult because of the resources industry’s volatility, and the relatively small number of companies paying full tax.

The EITI report, which is produced by Ernst & Young, says that ‘in some cases, the absence of a robust system for managing government revenue payments in PNG leaves the system vulnerable to fraud, corruption, and human error.’

It found that the problem of transparency is amplified when payments to sub-national [provincial and district] governments are taken into consideration, noting that the Asian Development Bank has called for greater transparency in sub-national government resource revenue flows.

Budgeting

Budgeting for government revenues, the report says, from the extractive sector is ‘complex due to the revenue being subject to fluctuations in quantities produced and global commodity prices’.

A further issue is the high number of extractive companies that have some form of tax exemption.

‘Medium-term projections anticipate that corporate income tax (mining and petroleum tax) will come mainly from Ok Tedi, Porgera and the oil fields.

‘The Ramu Nico mine has a 10-year exemption from corporate income tax. The Lihir mine continues to undertake high capital expenditures which reduce its taxable income.

‘Low LNG prices, together with an accelerated depreciation allowance, means there may not be corporate income tax from the PNG LNG project.

‘In addition, key mines are claiming Infrastructure Tax Credits (ITCs).’

PNG oil and gas production. Source: EITI

Recommendations

The EITI report makes a number of recommendations. One was the implementation of a reliable electronic registry system to supersede the current paper ledger system.

The report noted that scanning of all documents has begun, but it will require additional resources to adhere to the EITI Standard.

‘The Department of Petroleum and Energy will need to provide information regarding licences awarded and transferred in previous reporting periods.’

Another recommendation has been that the Mineral Resources Development Company (MRDC) reports on the equity distribution and all other funds it holds in trust and invests for the landowners and for future generations.

It notes that there has been better information on payments and receipts, especially from the MRDC.

Making electronic payments, rather than using cash or cheques, is identified as a priority. The lack of a ‘robust system for managing resource payments leaves the system vulnerable to fraud, corruption and human error,’ the report says.

‘There were specific financial instructions from the Finance Minister for government agencies to heed this change and transition into electronic payments system where possible.’

Two other areas of focus are improving reporting on sub-national payments and ensuring that Memorandums of Understanding (MOAs) are made public.

Positive prospects

The EITI report says the medium-term economic outlook for PNG ‘remains positive, with foreign investments in the pipeline’.

It anticipates 2.8 per cent GDP growth in 2018, pointing to:

  • A gradual pick-up in the global economy, which is expected to boost commodity prices and stimulate activity in sectors outside resource extraction.
  • Increased output in mining.
  • Forecast growth in agriculture, forestry and fishery output of 3 per cent, with increases in both price and production.
  • PNG’s hosting of the Asia-Pacific Economic Cooperation Leaders’ Meeting in 2018.
  • Legislative changes introduced on 1 January 2017 on taxation of the extractive sector.

Leave a comment

Filed under Corruption, Financial returns, Papua New Guinea

IRC raises tax concessions issue

Who is it persuades politicians to grant tax concessions without consulting relevant government departments?

Is it the mining companies directly influencing Ministers to make decisions against the national interest, disadvantaging ordinary people?

The National aka The Loggers Times | April 20, 2017

DECISIONS to grant tax concessions and incentives to resource projects should be made with the involvement of government entities and relevant organisations as well, an official says.

Internal Revenue Commission commissioner-general Betty Palaso told the meeting of department heads in Mendi, Southern Highlands yesterday that the Government should consider the other entities.

“An important factor that we can factor into preparations for the new parliament is how government deals with tax concessions and tax incentives, etc,” Palaso said.

“A lot of time, submissions go directly to Cabinet, approving certain tax concessions and incentives before coming to IRC, Department of Treasury or Papua New Guinea Customs. And we are then told to implement it.

“For example, LNG has a lot of tax incentives.

“Therefore, we have not been able to get revenue in terms of corporate income tax for a long time.

“And that is because decisions were made to allow these kind of incentives to large multi nationals.

“We have to seriously think about it. And then we have another developer in the same sector coming in to say we want the same concessions given to this particular developer given to us as well.”

Palaso said once that was done, it reduced the country’s revenue base.

“So when that is done again, the revenue base is much more reduced,” she said.

“Now we can see the impact of the reduction in the commodity prices which is now impacting on how much revenue is being generated and coming into the Government to date.”

Leave a comment

Filed under Corruption, Financial returns, Papua New Guinea