View Full Version : Deloitte Touche Tohmatsu - Tax Alert May 2003 !

16-05-2003, 11:04 PM
This Alert has been prepared to keep you informed of legislation changes and policy updates together with other information that we hope will prove to be of assistance to you in managing your business. We welcome any input from you that would make our Alert more informative and useful to you.

Value Added Tax (VAT) / Goods and Services Tax (GST)

In our last Alert, we noted that validating legislation was needed to be passed by Parliament to guarantee the legislative certainty of the current VAT Act and also the new GST Act that is due to come into force on 1 January 2004.

We understand that the final reading of the validating legislation will take place during the current sitting of Parliament that began on 6 May 2003. However a number of problems have arisen recently that must be overcome prior to the passage of the legislation being completed.

The Finance Minister has indicated that negotiations are still in progress with the Provinces on the method of calculating the amount due to them, despite an earlier understanding with the Governors that the matter had been settled.

The question as to how much each Province will be entitled to receive under the Revenue Distribution Act must be resolved before July 2003.

This is the date by which the constitutional amendments must be passed to validate the current VAT Act beyond the judicial stay of proceedings that expires on 30 June 2003. Agreement is also required to allow the transition to the new GST Act that is due to come into force on 1 January 2004.

IPA Check on Annual Returns

The Registrar of Companies has updated and expanded the database from which they extract information from the annual returns lodged by companies. We believe that the Investment Promotion Authority (IPA) will be able to gain access to this information.

If this proves to be the case the IPA will be able to use this additional information to query companies that may have elements of foreign ownership or control as to why they are not registered with IPA.

Superannuation Fund Approvals handed over to Bank of Papua New Guinea

The Internal Revenue Commission (IRC) has confirmed that the approval of all superannuation funds is now a function of the Bank of Papua New Guinea as the regulator under the new Superannuation Fund Act.

The IRC has taken this to include applications lodged prior to the introduction of the new Act on 1 January 2002 but were not approved, for whatever reason, by that date. Such cases are being returned with the advice that the application should now be resubmitted to the Bank of Papua New Guinea for approval.

Dividend Rebates

A worrying trend has been noted in that IRC have issued some assessments whereby they have not allowed the full rebate of tax that would normally be allowable under section 216 of the Income Tax Act in respect of dividends received by companies.

The Act states that the rebate is to be allowed on the net dividend received, meaning the gross dividend less expenditure directly incurred in earning that dividend. However the IRC has, on some occasions, where there is both dividend income and normal business income pro-rated the expenditure that would normally be applicable to the business income against the dividend received to effectively reduce the dividend income and thus reduce the rebate of tax applicable. This of course results in additional tax becoming payable.

We do not agree with this practice and will be taking the matter up with Internal Revenue Commission at a senior level in order to resolve this matter.

Tax Return Lodgement

Company tax returns lodged by tax agents for the year ended 31 December 2002 will not be granted an extension of time in which to lodge beyond 30 June 2003 according to the latest Circular to Tax Agents issued by IRC unless the company has a taxable income for the year ended 31 December 2002 of less than K100,000 and all outstanding taxes have been paid.

Penalties will be applied for late lodgement of tax returns in line with the current IRC policy.

Company Tax Rates

With the higher company tax rate of 30 % taking effect from 1 January 2003 it is timely to note that those companies with approved balance dates other than 31 December will be taxed at 30%. Company tax is calculated on the year of tax and each substituted balance date.

Thus the rate of company tax payable by a company having a 30 June balance date for its return for the 2004 year of tax will be 30% for the full year. It will not pay tax at a rate of 25% for the first 6 months plus 30% for the remainder of the year.

If you would like to discuss any aspect of this alert please contact: any of the following by email

Paul Barber pabarber@deloitte.com.pg
Larissa Hines lhines@deloitte.com.pg
Arun Basu abasu@deloitte.com.pg
Brydon Davidson brydavidson@deloitte.com.pg
Alan Crossman acrossman@deloitte.com.pg

Alternately, they can be telephoned on + 675 308 7000

16-05-2003, 11:15 PM
Deloitte Touche Tohmatsu's office is situated on the 12th Floor, Deloitte Tower, centrally located in the heart of Port Moresby.