PM Marape Announces Record K9.7 Billion Tax Revenue Performance

by PNG Business News - September 15, 2022

Photo credit: IRC

Prime Minister Hon. James Marape today announced a record K9.7 billion tax revenue collection by the Internal Revenue Commission (IRC).

He made the announcement as he prepares to travel to London for the funeral service of Queen Elizabeth II and as Papua New Guinea prepares to celebrate its 47th Independence anniversary on Friday, September 16, 2022.

I commend the sterling performance by the Internal Revenue Commission for the last eight months, PM Marape said.

Papua New Guinea could not have asked for a better 47th Independence Anniversary performance indicator of a key State energy working its heart out. This record collection is the highest ever since 1975, and most importantly, highest collection ever in a tough year.

As of week ending September 9, 2022, the Internal Revenue Commission has collected around K9.7 billion with net transfers of K9.4 billion to the Waigani Public Accounts as projected by the 2022 National Budget. 

This is a record achievement in a fiscal year, where IRC was able to surpass its annual target in the space of only eight months. 

Compare the first eight months of this year with first eight months of last four years: IRC’s Tax Revenue Collections in 2022 was boosted by a windfall in the petroleum and gas sector directly related to the Russian-Ukraine conflict. The global supply constraint coupled with higher demand as a result of post-COVID normalcy has seen the price of oil nearly double in space of just 12 months. Total Mining and Petroleum Tax (MPT) collection in the first eight months of 2022 totalled K2.965 billion. 

Whilst windfall from MPT is acknowledged, other taxes have also performed strongly in 2022 – a reflection of some of the transformational interventions introduced at IRC since 2019. 

The average MPT collections for the past four years (2018-2021) was K379 million.

The average total collection for first eight months of the last four years was K5.657 billion.

2022 total collection for the first eight months, less the MPT windfall, is K7.163 billion.

 

A total of K1.5 billion in increase revenue not attributed to MPT windfall has eventuated in the last eight months of 2022. 

Non MPT taxes have performed well above the average of the last four years. IRC is beginning to see the fruits of its revenue initiatives and will continue to strive on becoming a robust and efficient tax administration by 2025.”

PM Marape said some of the notable initiatives and their revenue gains were as follows:

  • Introduced stringent Goods and Services Tax (GST) verification for refunds.  This resulted in 20 per cent increase in GST collection annually or K200 million; 
  • Cessation of credit offsets of GST to pay Salary and Wages Tax (SWT) liability. This resulted in K30-K40 million plus /month or K500 million annually;
  • GST s65 was rolled out. This resulted in K200 million-plus in the last eight months;
  • Increased media presence and awareness via media, resulting in on time payment improvement;
  • Increased support to provincial officers for tax inspections and awareness; and 
  • The overall taxpayer awareness, improvement in efficiencies, increase in compliance activities and use of technology, amongst others, has contributed towards the sustained improved performance of IRC since 2019.

The Marape Government is intentional in raising internal revenues, hence, this year the Government increased the budget of the Internal Revenue Commission, the Prime Minister said.

In 2022, the Government provided K160 million. This is the biggest budget support ever for IRC. 

I understand that IRC has initiated 32 major reform projects to transform IRC into a robust, modern and efficient tax administration by 2025. The Government will continue to support IRC in the next two years to ensure that those projects are implemented successfully.

The Marape Government’s focus is on growing the economy, raising internal revenue and reducing borrowing over time. 

The Government has intentions to introduce the immediate tax reliefs to cushion the impact of inflation.

The Government is also work toward the Golden Jubilee Anniversary in 2025 where most of the taxes, especially Salary and Wages Taxes and Corporate Income Taxes, will be reduced. IRC is currently undertaking all these projects to establish a cohesive collection mechanism so that any reduction in tax rates (tax revenue forgone) will have revenue positive effect.



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The PNG minimum wage is converted into Australian dollars using the current exchange rate. Both wages are then adjusted for inflation and expressed in 2021 prices. The two series follow diametrically opposed paths. The Australian minimum wage fell with the high inflation of the 1970s and industrial relations reforms of the 1980s, and by the early 1990s was little more than half its value in the 1970s. It then increased in the late 1990s and 2000s during the resource boom, and has continued to increase. Adjusting for inflation, it is now almost back to where it was in the early 1970s. The PNG minimum wage does the opposite. It increased in the 1970s and was then held stable due to indexation, until the big bang reforms of 1992. Adjusted for inflation, PNG’s minimum wage continued to fall until 2004. There have since been some significant increases, but today PNG’s minimum wage is only about one-third of its value at independence, and below its value even in 1972, which is when the steep minimum wage increases began. The Australian minimum wage has always been significantly higher than the PNG one, but the ratio has changed a lot over time. The lowest that ratio has ever been is 2.2 in 1986, the highest 45 in 2004. The gap between the two wages is much higher now than at independence: the ratio of the Australian to the PNG minimum wage was 14.5 in 2021, compared to only 3.2 at independence (1975). This reflects PNG’s 1992 deregulation, and the faster growth in the Australian economy, which has enabled an increase in the Australian minimum wage. The solution to low wages in PNG is not necessarily to increase the minimum. In some sectors, where there is a lot of international competition, a higher minimum wage might lead to job losses. For example, in tuna processing, one of PNG’s main competitors is the Philippines. From Figure 1, we can see that PNG’s minimum wage is lower than the Philippines' on the basis of PPPs, but actually higher on the basis of market exchange rates. While the former is what matters for the welfare of workers, the latter is what matters for international competitiveness. Whether PNG’s minimum wage should be increased will require a lot more analysis. The point of this blog is simply that PNG’s minimum wage does not look high any more by international comparisons, as it has fallen a lot since independence. PNG is often described as a high-cost economy, and this is a fair description. However, with regards to unskilled labour, it is no longer a high-wage economy.   Data note: The PNG Economic Database provides the weekly minimum wage of PNG going back to 1972, and the PGK-AUD exchange rate. Wikipedia provides the Australian weekly minimum wage data (hourly and weekly, on the assumption of a 38-hour week) starting from 1966. The Australian CPI is from the Australian aid tracker. There are some years where Australian minimum wage rates change more than once in a year. For such cases, we took the average as annual minimum wage rate. The data for Asia-Pacific comparisons are from the International Labour Organization and the World Bank. The different frequencies of minimum wages for each country in 2019 in the ILO’s report are adjusted to convert to weekly rates. World Bank data is used to obtain market exchange rates and PPP conversion factors. For the Goodman, et al., data go to Table 3.6 on p.61 in their report.\ Disclosure: This research was undertaken with the support of the ANU-UPNG Partnership, an initiative of the PNG-Australia Partnership, funded by the Department of Foreign Affairs and Trade. The views are those of the authors only. This article appeared first on Devpolicy Blog (devpolicy.org), from the Development Policy Centre at The Australian National University. Stephen Howes is Director of the Development Policy Centre and Professor of Economics at the Crawford School of Public Policy, at The Australian National University. Kingtau Mambon is currently undertaking a Master of International and Development Economics at the ANU Crawford School of Public Policy, for which he was awarded a scholarship through the ANU-UPNG Partnership. Kelly Samof is a lecturer in economics at the School of Business and Public Policy, University of Papua New Guinea.

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