PNG TAX OVERVIEW/MERGERS & ACQUISITIONS
> business entertainment expenses are not generally deductible
at the taxpayer’s option, at cost, market selling or replacement cost.
> depreciation or amortisation of intangibles is not deductible
Provision exists for the value of trading stock to be adjusted where special circumstances, such as obsolescence, exist.
> deductibility of management fees paid can be restricted > various other concessions and exemptions exist which may have a further impact. Capital gains There is currently no general capital gains tax in PNG. Capital gains are only taxable if they have been realised as part of a specific profit-making scheme or undertaking, or if they are related to the ordinary business of the taxpayer, as for example to that of a share trader. Exempt income There are a number of exemptions available in the PNG Income Tax Act, including: > certain qualifying export sales > rural development income from a prescribed rural development area > unit trust after-tax distributions to unit holders. Trading stock (inventory) Movement in the value of stock on hand is assessable or deductible as the case may be. Stock can be valued,
The Internal Revenue Commission (IRC) is the PNG tax authority. IRC may vary the value of trading stock where it considers that the transfer of trading stock did not take place at a reasonable commercial value. Depreciation Depreciation of plant and equipment is an allowable deduction for income tax purposes. The annual deduction is calculated on the basis of the cost of the particular item, plus any additional costs required to put that item into place, spread over its effective life. The rates of depreciation allowable are determined in the first instance by the IRC, although provisions do exist for a taxpayer to gain approval from the IRC for adopting a different rate in relation to a particular item. Depreciation is allowable on either a prime cost (straight line) basis or a diminishing value (reducing balance) basis. The diminishing value rate is 150% of the prime cost rate. Where plant is sold at a price exceeding its written down value that excess, up to the amount of the depreciation claimed, is
THE PNG INVESTORS’ MANUAL - THIRD EDITION
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