Papa New Guinea VAT, GST, and Sales Tax Guide

Papua New Guinea

Port Moresby

EY

Level 4 Credit House Cuthbertson Street P.O. Box 1380

Port Moresby

Papua New Guinea

Indirect tax contacts

Colin Milligan +675 305-4125 colin.milligan@pg.ey.com

Brent Ducker +61 (7) 3243-3723 (resident in Brisbane, Australia) brent.ducker@au.ey.com

A. At a glance

Name of the tax

Goods and services tax (GST)

Local name Goods and services tax (GST)

Date introduced 1 January 2004

Trading bloc membership Asia-Pacific Economic Cooperation (APEC)

Administered by Internal Revenue Commission (IRC) (http://www.irc.gov.pg)

GST rates

Standard 10%

Other

Zero-rated (0%) and exempt

GST number format TIN999999999

GST return periods

Generally monthly; periods of up to six months if annual taxable supplies less than PGK625,000 subject to approval by the IRC

Thresholds

Registration PGK250,000

Recovery of GST by non-registered businesses No

B. Scope of the tax

GST applies to the following transactions:

GMT +10

• Taxable supplies of goods and services, which are supplies connected to Papua New Guinea (PNG) or deemed to be supplied in PNG and made for consideration in the course of a taxable activity by a taxable person that is registered or that is required to be registered for GST

• Reverse charge on services received from abroad that are made to a registered entity in PNG

• Taxable importations of goods into PNG, regardless of the status of the importer

An activity does not need to be carried on for the purposes of making a profit for it to be registered for GST. “Taxable activity” means a business activity that is carried on continuously or

regularly by a person, whether or not for a pecuniary profit, and involves or is intended to involve, in whole or in part, the supply of goods and services to another person for a consider ation, and includes any such business activity carried on in the form of a trade, manufacture, profession, vocation, association or club.

C. Who is liable

GST registration is mandatory if either of the following thresholds is met:

• The total value of supplies (excluding exempt supplies) made in PNG in a month and the 11 months immediately preceding that month in the course of carrying on all taxable activities that exceeds PGK250,000.

• The projected GST turnover, which is the value of taxable supplies made or likely to be made in the current month plus the next 11 months, is reasonably likely to exceed PGK250,000.

Exemption from registration. The GST law in PNG does not contain any provision for exemption from registration.

Voluntary registration and small businesses. A taxable person that has turnover below the registration threshold may apply to register for GST voluntarily if the entity is carrying on a taxable activity.

A taxable person that is a not-for-profit body may apply in writing to the Commissioner General of Internal Revenue to register for GST voluntarily if the entity is carrying on a taxable activity.

Group registration. Subject to certain requirements, two or more companies that have an aggre gate of common voting interests of 90% or greater constitute a wholly owned group for the purpose of the GST Act and may apply to the Commissioner General of Internal Revenue to form a GST group. Other entities (e.g., partnerships and trusts) that satisfy common control tests may also apply for grouping. The effect of GST grouping is to treat the group members as a single entity for certain purposes. In general, all GST liabilities and input tax credit entitlements for group members are attributed to a representative member of the group, and the group submits a single GST return. All members of a GST group in PNG are jointly and severally liable for GST debts and penalties.

A registered person carrying on its activities in branches or divisions may apply in writing to the Commissioner General of Internal Revenue for a branch or division to be registered as a separate registered person. Certain requirements must be met relating to the nature of the activities and accounting systems of proposed GST branches. In addition, a branch of a registered entity may not be registered as a GST branch if the entity is a member of a GST group. There is no minimum time period required for the duration of a GST group.

Non-established businesses. GST applies to taxable supplies and to taxable importations made by non-established businesses. Branches of non-established businesses carrying on taxable or other activities in PNG are required to register and charge GST with respect to their supplies.

Tax representatives. When a taxable person dies, or is placed into liquidation or receivership, or becomes bankrupt or incapacitated, the person appointed as personal representative, liquidator, receiver or agent is deemed to be the “specified agent” and carries on the taxable activity from the date of appointment. The specified agent is not personally liable for any liabilities incurred before the date of appointment. The agency period ends when another person is registered in respect of the taxable activity or when the appointment ceases, whichever is the earlier.

Reverse charge. If a service is deemed to be supplied in PNG under the provisions of the GST Act, reverse-charge provisions can apply if all the following conditions are met:

• The supplier is a non-established business

• The supplier does not make the supply through an enterprise that it carries on in PNG

• The recipient is registered (or is required to be registered) for GST

If a resource company makes exempt supplies, the reverse-charge provisions apply.

Domestic reverse charge. There are no domestic reverse charges in PNG.

Digital economy. For business-to-business (B2B) transactions, the customer is expected to reverse charge the GST liability where the principal is deemed to make the supply in PNG. A PNG GST input tax credit arises for the customer, assuming the supply is acquired for the principal purpose of conducting taxable activities.

For business-to-consumer (B2C) transactions, the individual will generally not be GST-registered (or required to be registered), as the individual will generally not be carrying on taxable activi ties.

Nonresidents that provide electronically supplied services do not need to register for GST in PNG on the basis that the services are performed outside PNG.

There are no specific e-commerce rules for imported goods in PNG.

Online marketplaces and platforms. No special rules exist for online marketplaces and platforms in PNG.

Registration procedures. After a company is registered with the Investment Promotion Authority, it should apply to the Internal Revenue Commission (IRC) for a taxation identifica tion number (TIN). The Form TIN1 application requires various details of the enterprise and the company must attach a copy of the IPA registration, including extract and proof of identity of the authorized signatory. There is no online filing facility, however, a scanned email copy should be acceptable.

Deregistration. A taxable person that ceases to carry on business may request in writing that the Commissioner General of Internal Revenue cancel its GST registration. A taxable person must notify the PNG IRC that it is no longer entitled to be registered within 21 days after ceasing operations. A taxable person that is no longer required to be registered may apply to cancel its registration. However, the Commissioner General of Internal Revenue is not required to cancel the registration if a business has been registered for less than 12 months.

Changes to GST registration details. Any changes to a taxable person’s name, address, constitution or nature of its principal activity must be notified within 21 days to the IRC through a Form TIN1 application identifying the changes made. There is no online filing facility; however, a scanned email copy should be acceptable.

D. Rates

The term “taxable supplies” refers to supplies of goods and services that are liable to a rate of GST, including the zero rate.

The GST rates are:

• Standard rate: 10%

• Zero-rate: 0%

The standard rate of GST applies to all supplies of goods or services unless a specific measure provides for the zero rate or an exemption.

Examples of goods and services taxable at 0%

• Sale of going concerns

• Supplies of goods and services to foreign aid providers

• Supplies of goods and services to nonprofit bodies, which are religious, charitable or commu nity organizations carrying on charitable activities approved by the Commissioner General of

Internal Revenue, provided that the supplies or goods are not used for profit-making taxable activities

• International travel

• Exported goods and services

The term “exempt supplies” refers to supplies of goods and services that are not liable to GST and do not qualify for input tax deduction.

Examples of exempt supplies of goods and services

• Financial services

• Certain fine metals

• Medical services

• Educational services

• Public transport and taxis

• Newspapers

• Supplies of housing or motor vehicles by employers to employees

• Specific exemptions as notified in the National Gazette

Option to tax for exempt supplies. The option to tax exempt supplies is not available in PNG.

E. Time of supply

For the purpose of the GST Act, a supply of goods and services is generally deemed to take place at the earlier of the time of issuance of an invoice by the supplier or the recipient or the time of receipt of any payment by the supplier with respect to the supply.

Deposits and prepayments. There are no special time of supply rules in PNG for deposits and prepayments. As such, the normal time of supply rules apply (as outlined above).

Continuous supplies of services. Where goods or services are supplied progressively or periodi cally, those goods or services are deemed to be supplied successively. Each successive supply is deemed to take place at the earliest of when payment for that supply becomes due, is received or any invoice relating only to that payment is issued.

Goods sent on approval for sale or return. There are no special time of supply rules in PNG for sup plies of goods sent on approval for sale or return. As such, the normal time of supply rules apply (as outlined above).

Reverse-charge services. For reverse-charge services, the recipient is required to account for the services in the period in which the services are paid for. If the consideration is not in money, the services need to be accounted for in the period in which the services are performed.

Leased assets. Where goods are supplied under a hire or lease agreement, they are deemed to be successively supplied for successive parts of the period of the agreement. Each of the successive supplies is deemed to take place when a payment becomes due or is received, whichever is the earlier. The treatment is the same irrespective of the type of lease (i.e., whether ownership of the underlying asset is transferred or not).

Imported goods. GST is payable for imported goods at the time of importation. A deferral scheme may apply. Under the scheme, GST on importations is deferred such that where the importer is entitled to a full GST input credit for the import GST, the import GST liability will be offset against that credit.

Goods imported temporarily into PNG under the provisions of the Customs Act are zero-rated for GST purposes and import duty is not applied to these goods. In general, the importer must provide a security bond of 10%. The bond paid for temporary imports is intended to be refunded

when the goods are re-exported out of the country. Goods are classified as temporary imports if they are re-exported within 12 months.

If imported goods remain in the country for more than 12 months, the goods are deemed to be permanent imports and the bond is forfeited. The applicable GST can then be claimed as an input credit (subject to the normal rules).

F. Recovery of GST by taxable persons

A registered entity may recover input tax credits with respect to creditable acquisitions. These credits correspond to the GST included in the consideration for goods and services that a regis tered entity acquires for creditable purposes. A registered entity generally recovers input tax by offsetting them against GST payable on taxable supplies.

Input tax credits correspond to GST included in the consideration for goods and services acquired in PNG, GST paid on importations of goods and GST paid under reverse-charge arrangements.

In general, valid tax invoices or customs documents must be retained to support claims for input tax credits.

The time limit for a taxable person to reclaim input tax in PNG is eight years after the end of the taxable period. This is unless a written application has been made before the end of the eight-year period.

Examples of items for which input tax is nondeductible

• Housing or motor vehicles provided to employees

• Entertainment or leisure club facilities

• Acquisitions made for purpose of making exempt supplies

• If no valid tax invoice is held

Examples of items for which input tax is deductible (if related to a taxable business use)

• Imports

• Trading stock

• Business occupancy costs

• Repairs and maintenance

Partial exemption. GST on acquisitions of goods and services used to make exempt supplies or on acquisitions that are not used for business purposes (for example, goods acquired for private use) are not eligible to be claimed as an input credit. Where an acquisition is used for both taxable and exempt supplies, only the proportion of GST that relates to taxable supplies may be claimed as an input credit. The apportionment is generally required to be calculated on a monthly basis with an annual reconciliation of total input and output tax to be done within 60 days of the tax able person’s fiscal year. Where the input credits calculated on the annual basis differ from the total of the monthly calculations any excess input credits based on the annual calculations are refundable. Where the total of the monthly input credits exceeds the annual calculation, the excess is payable at the time the annual reconciliation is due. Approval from the tax authorities is not required to use the partial exemption standard method in PNG. Special methods are not allowed in PNG.

Capital goods. There are no specific rules applicable to capital goods. Where the acquisition of capital goods is solely for the purpose of making taxable supplies, the input tax is allowable as an input credit in the taxable period in which the supply was made to the person or the period in which the GST input tax was paid or invoiced in the case of imported capital goods. Where capital goods are used for making both taxable and exempt supplies, the same rules for claiming input credits on other goods apply.

Refunds. If the amount of input tax credit in a period exceeds the GST payable in the same period, the excess amount is technically refundable to the taxable person. However, in practice, it is often necessary to first satisfy the IRC that the refund is valid. The excess can be requested to be applied against GST liabilities in a subsequent period or against other tax liabilities, except for salary or wages tax.

Pre-registration costs. GST paid on acquisitions made by a person within six months prior to incorporation of a company may be claimed as an input credit by the company after it is regis tered. The acquisition must have been made by a person who becomes a member, officer or employee of the company and that person must have been fully reimbursed for the consideration paid. The acquisition must also have been for the purpose of a taxable activity to be carried on the company. The input credit is claimable in the taxable period in which the reimbursement is made.

Other than in the above circumstances, GST in respect of pre-registration acquisitions may not be claimed as input credits.

Bad debts. Where a registered person accounts for GST on the accruals basis and writes off all or part of an amount previously reported as a taxable supply, the person is entitled to claim a deduction for the amount of the GST included in the amount written off as a bad debt in the period in which the debt is written off.

Noneconomic activities. Input tax incurred on purchases that are used for noneconomic activities is not recoverable in PNG.

G. Recovery of GST by non-established businesses

Input tax incurred by non-established businesses in PNG is not recoverable.

H. Invoicing

GST invoices. In general, a registered person must provide a tax invoice for all taxable supplies made if requested to do so by the recipient of a supply. A tax invoice is not required for supplies with a GST-inclusive amount of PGK50 or less.

In general, a tax invoice is necessary to support claims for input tax credits.

Credit notes. An adjustment note (or credit or debit note) may be issued to reduce or increase the amount of GST payable on a supply if the amount of GST originally charged is incorrect (for example, as a result of an error or an agreed adjustment to the price). The adjustment note must be clearly marked either as an adjustment note or as a tax invoice (provided the amount of any credit is shown as a negative amount), and it must provide detailed particulars of the adjustment made.

Electronic invoicing. Electronic invoicing is allowed in PNG, but not mandatory. To facilitate the electronic transfer of tax invoices, the Commissioner may approve the use of symbols, abbreviations or other notations to represent any particulars normally required to be shown on a tax invoice.

Simplified GST invoices. Where the consideration for the supply is less than PGK200, neither the name nor address of the recipient nor the quantity or volume of the goods and services supplied is required to be shown on the invoice. Also, where the consideration for the supply is less than PGK50, no tax invoice is required to be issued.

Self-billing. With prior approval of the Commissioner, the supplier and recipient can agree that the supplier does not issue a tax invoice and instead the recipient issues a document with the words “buyer-created tax invoice – IRC approved” in a prominent place.

Proof of exports. Exports of goods are zero-rated (GST-free). To qualify as GST-free, goods must be entered for export under the Customs Act and the Commissioner General of Internal Revenue must be satisfied that the goods have been exported to a place outside PNG. Zero-rating applies if the goods are exported within 28 days unless unforeseeable circumstances delay the shipment of the goods.

Foreign currency invoices. All invoices must be expressed in the domestic currency, which is the Papua New Gunea kina (PGK). The exchange rate at the time of supply is required to be used. Where the consideration is agreed in a foreign currency, that can also be shown on the invoice.

Supplies to nontaxable persons. There are no specific rules for GST invoices for supplies made to private consumers. However, where the consideration for the supply is less than PGK50, no tax invoice is required to be issued.

Records. The records required to be kept include books of account (manual or electronic) record ing receipts of payments of income or expenditure, vouchers, bank statements, invoices, tax invoices, credit notes, debit notes, receipts and such other documents as are necessary to verify the entries in the books of account. The records need to be in English unless approval of the Commissioner is obtained. Such records are also required to be kept in PNG, unless otherwise approved by the Commissioner.

Record retention period. All relevant records must be kept for at least seven years after the end of the taxable period to which they relate and may be kept in electronic format. The seven-year period may be extended if the Commissioner gives notice in writing of audit activity.

Electronic archiving. Copies of invoices are required to be kept in PNG, unless otherwise approved by the Commissioner. Records may be kept in electronic format.

I. Returns and payment

Periodic returns. GST liabilities are reported in a GST return. A registered person must file the GST return in the required form on or before the 21st day of the following tax period (a calendar month).

Government departments and state-owned entities. If a taxable person makes a GST-taxable sup ply to an entity listed below, that entity is required to withhold the GST amount and remit that directly to the IRC. In the GST return for that month, it will still be required to report the total sales, including GST, and the amount withheld will still be included in the calculation of the amount payable or refundable for the month. The amount withheld will need to be disclosed in line 16 of the GST return. Then the actual payment to the IRC should be reduced by the amount withheld. If the amount withheld is greater than the amount calculated as payable for the month, no payment should be made for the month.

Government departments and state-owned entities to which the GST Section 65A Notice applies:

• Kumul Petroleum Holdings Limited

• Kumul Consolidated Holdings Limited

• National Fisheries Authority

• National Airports Corporation

• Department of Treasury

• Department of Finance

• Department of National Planning and Monitoring

• Department of Education

• Department of Higher Education, Research, Science and Technology

• Department of Health

• Department of Defense

• Department of Personnel Management

• Department of Prime Minister and National Executive Council

• Department of Works

• The Royal Papua New Guinea Constabulary

Periodic payments. GST liabilities must be paid in PNG Kina by the 21st day following the tax period. The payment should be made by electronic funds transfer.

Electronic filing. Electronic filing is allowed in PNG, but not mandatory. The IRC has introduced a basic electronic filing option. To use the electronic filing option, the taxable person must scan the signed paper return form and attach it to an email with details of the electronic funds transfer to confirm payment.

Payments on account. Payments on account are not required in PNG.

Special schemes. Secondhand goods. Where secondhand goods situated in PNG are acquired by a registered person by way of a sale that is not a taxable supply, the registered person is allowed to claim an input credit equal to the tax fraction (1/11th) of the consideration in money for the supply.

Accrual basis of accounting. When a taxable person registers for GST, it automatically goes on an accrual (or invoice) basis of accounting for GST. For businesses that account for GST on an accrual basis, GST is payable with respect to a taxable supply for the tax period in which the invoice is issued or when any consideration is received for the supply, whichever is earlier.

Cash or payment basis of accounting. Entities with annual turnover that does not exceed PGK1.25 million may account for GST on a cash basis. Cash accounting is also available to certain entities regardless of turnover. These entities include local authorities, not-for-profit bodies and other entities subject to the discretion of the Commissioner General of Internal Revenue. Cash accounting is allowed when the Commissioner General of Internal Revenue grants approval in writing.

For entities using cash accounting, GST is payable with respect to a taxable supply in the tax period in which the consideration is received. If only part of the consideration is received in a particular tax period, GST is payable only on that part.

Annual returns. Annual returns are not required in PNG.

Supplementary filings. No supplementary filings are required in PNG.

Correcting errors in previous returns. Where the previously reported output tax was incorrect due to any of the following reasons:

• Cancellation of the supply

• Fundamental change in the nature of the supply

• Change in consideration for the supply

• Return of the goods or services

The output tax adjustment is made in the period in which it became apparent that the output tax was incorrect. Where input tax is claimable in respect of a previous period but has not been claimed, it may be claimed in any later period.

Where adjustments are made in respect of prior periods, the relevant adjustments are included in the amounts reported for the GST return for the period in which the adjustments are made. No separate disclosure or approval is required.

Digital tax administration. There are no transactional reporting requirements in PNG.

J. Penalties

Penalties for late registration. Penalty for late registration of GST is a liability to a fine not exceed ing PGK25,000.

Penalties for late payment and filings. Penalty for late payment is 10% of the unpaid amount at the due date plus 20% per annum on the unpaid amount from the due date until paid.

Penalties for errors. Penalty for errors is a liability to a fine not exceeding PGK25,000.

Penalties for failure to notify the tax authorities of a change in a taxable person’s GST registration details start at a fine not exceeding PGK5,000 for the first occasion, not exceeding PGK10,000 for the second occasion and not exceeding PGK15,000 for subsequent occasions.

Penalties for fraud. Penalty for fraud is a liability to a fine not exceeding PGK25,000.

Personal liability for company officers. Company directors have personal liability if the company defaults on its GST obligations. Directors are jointly and severally liable for the company’s GST tax liabilities; and if any liability is outstanding, the directors are liable to a penalty equal to the company’s liability. The Commissioner General is not entitled to recover the penalty until the expiration of 30 days after the Commissioner General has given notice to the director. If the liability has been paid within 30 days of the issue of the notice, the penalty will be remitted in full.

Statute of limitations. If a return has been submitted and no assessment has been made, the Commissioner is not able to make an assessment after four years from the return’s submission date. If an assessment has been made, the Commissioner is not able to alter the assessment to increase the assessment after the earlier of the return’s submission date or the date of the assess ment.

A taxable person may object to an assessment within the time specified in the notice of assess ment not being less than two months after the date of the notice. The Commissioner may allow further time in particular circumstances.

Where, in the opinion of the Commissioner, a taxable person has knowingly or fraudulently failed to make a full and true disclosure, the Commissioner may make an assessment or alter an assess ment at any time.