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PWC Update

IPA changes for 2016 

Over the past 2 years, the IPA has been undergoing a significant process of reform with the aim of moving its functions wholly online. This process has also been in conjunction with amendments to the Companies Act which, among other matters, have introduced changes for compliance processes for entities that are operating in PNG.

The Companies Act amendments have been passed and gazetted – but the implementation through the Registrar of Companies has been delayed on a number of occasions as the internal preparations and system improvements continued. However, the IPA has recently announced that the new arrangements will be implemented from 4 January 2016.

There are a number of important changes that IPA registered entities will need to take into consideration for their compliance from 4 January 2016. These include:

  • Almost all operations will only be able to be conducted online. Paper forms will generally no longer be accepted for submission
  • In order to access the online system for lodgements and changes to company and foreign enterprise records, entities need to either register or appoint someone with an authority to act on behalf of the entity with the IPA
  • The payment methods available to entities are by credit card or through an account with the IPA that requires pre-funding, with the authority for the IPA to then deduct fees and charges as required for filings.
  • The date for filing the annual return has been changed. The Registrar has nominated a month for the filing of the return. This is the anniversary of the month in which the company was initially registered. However, companies may request a change of filing timetable to a different month to align with their requirements.
  • We understand that the new schedule of IPA fees will be effective from 4 January 2016. The fees are substantially higher than the current equivalent fees. For example, foreign companies’ annual return fee is going from the current fee of PGK 50 to a new fee of PGK 750.
  • Fees for late annual returns will rise from the current level of PGK 150 to PGK 500 for returns up to one month late and PGK 1000 for returns that are more than one month late. Therefore, we strongly recommend that you should take the opportunity available before the introduction of the new fee arrangements to ensure that your company secretarial compliance is up to date.
Salary and Wages Tax Circular
We previously reported that an IRC circular in relation to salary and wages tax was being drafted by the IRC. The draft has now been released for comment. The circular explains the view of the IRC with respect to the scope of salary and wages, how exemptions and rebates work as well as some administrative matters for SWT. The circular helpfully confirms that generally, where duties are performed in PNG, the relevant remuneration of employees will be liable to SWT in PNG. It then appropriately uses this principle to confirm the general application of SWT to employees of foreign contractors and reinforces that treaty exemption for SWT is only available where all the requirements of the relevant treaty are met.
There is also an extended discussion with respect to how the concept of salary sacrificing and the provision of non-cash benefits are viewed by the IRC.  While broadly confirming the effectiveness of undertaking appropriate and properly constructed remuneration structures, there are a number of aspects that are of concern:
  • commentary in respect of the exemption provided for allowances or expenses for school fees
  • commentary in relation to a novated motor vehicle lease
  • commentary in relation to the administration of applications for additional  exempt  leave fares based on remoteness or hardship of the work location.

Other topics covered include the administration of housing allowance variation notices and the application of rebates. Submissions in relation to the draft are able to be made until 16 October. PwC is preparing a submission to address the concerns raised above and other technical issues raised by the draft. Irrespective of the outcome of submissions, now is the time to review the operation and application of SWT to operations in PNG.

GST and Stamp Duty
The tax review committee has released two more papers dealing with GST and with other indirect taxes (principally stamp duty). The GST issues paper picks up some of the themes that were initially raised in pervious papers including the idea of an overall increase in GST rates offset by a reduction in the tax rates applicable to salary and wages.

Another key aspect of the paper is posing the question of whether the current zero rated GST regime applicable to the inputs to resource projects is appropriate. The paper states that the administrative choice to zero rate supplies to resource companies has added complexity and opened the system to fraud.  However, the paper does acknowledge that without a streamlined and functioning refund system, and the introduction of a GST on import deferral scheme, a change to the resource company provisions would have a significant impact on the operation of GST in the economy. The paper also explores whether changes to the GST registration threshold or other actions could broaden participation in the system.

In the indirect tax paper, the question of whether stamp duty continues to be an appropriate revenue collection mechanism is raised. Stamp duty is a significant but highly volatile source of revenue.  Transactions involving land and the transfer of mining and petroleum interests provide the bulk of receipts.  The direction of the questions and reform issues seems to indicate despite the potentially for distortion of transactions, the inefficiency of the tax, and its complexity, without a substitute of some other method of tax collection, no significant proposals are presented.   Submissions for both papers are still open.