Worldwide VAT, GST and Sales Tax Guide
Papua New Guinea
Port Moresby GMT +10
EY
Level 4 Credit House
Cuthbertson Street
P.O. Box 1380
Port Moresby
Papua New Guinea
Indirect tax contacts
Bouke Wagenaar +675 305-4138 bouke.wagenaar@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 GST
Date introduced 1 January 2004
Trading bloc membership Asia-Pacific Economic Cooperation (APEC)
Administered by Internal Revenue Commission (IRC) Commissioner General of Internal Revenue (Commissioner) (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 are 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:
• Taxable supplies of goods and services, which are 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 consideration and includes any such business activity carried on in the form of a trade, manufacture, profession, vocation, association or club.
Effective use and enjoyment. To avoid instances of non-taxation or double taxation, jurisdictions can apply “use and enjoyment” rules that allow a service that is “used and enjoyed” in the jurisdiction to be taxed or prevent a service that is “used and enjoyed” outside the jurisdiction from being taxed. If a service is taxed in the jurisdiction under the “use and enjoyment” provisions, a non-established supplier of the service may be required to register for GST in every jurisdiction where it has customers that are not taxable persons. In PNG, no services are subject to the “use and enjoyment” provisions.
Goods and services are deemed to be supplied in PNG where the supplier is not resident in PNG and meets the following:
• The goods are in PNG at the time of supply.
• The services are physically performed in PNG by a person who is in PNG at the time the services are performed. Or
• The services are performed outside PNG for the use or benefit within PNG of a person resident in PNG.
Regarding the third bullet point, the reverse-charge provisions apply if the recipient is deemed to have supplied the service in PNG in the course or furtherance of the recipient’s taxable activity.
Transfer of a going concern. Normally, the sale of the assets of a GST-registered or GST-registrable business will be subject to GST at the appropriate rate. However, a transfer of a business as a going concern (TOGC) may be zero-rated under certain conditions. A TOGC is the sale of a business or part of a business capable of separate operation including assets. Where the sale meets the conditions, the supply is treated as zero-rated. In PNG, a TOGC is treated as zero-rated where the following conditions are met:
• There is a supply of a taxable activity, or of a part of a taxable activity where that part is capable of separate operation.
• All of the goods and services that are necessary for the continued operation of that taxable activity or that part of a taxable activity are supplied to the transferee.
• The transferor carries on, or is to carry on, that taxable activity or that part of a taxable activity up to the time of its transfer to the transferee.
Transactions between related parties. In PNG, for a transaction between related parties, the value for GST purposes is calculated at the open market value.
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.
• 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
As defined in 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 periodically, 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 supplies 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 registered 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 taxable person’s fiscal year. Where 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 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 registered. 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.
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. Cash accounting is allowed when the Commissioner 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. The penalty for late registration of GST is a fine not exceeding PGK25,000.
Penalties for late payment and filings. The 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. The penalty for errors is a fine not exceeding PGK25,000.
The late notification or failure to notify the tax authorities of changes to a taxable person’s GST registration details may result in a penalty not exceeding PGK5,000 for the first occasion, then a penalty not exceeding PGK10,000 for the second occasion and then a penalty not exceeding PGK15,000 for subsequent occasions. For further details, see the subsection Changes to GST registration details above.
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 is not entitled to recover the penalty until the expiration of 30 days after the Commissioner 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. The statute of limitations in PNG is four years. 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 assessment.
A taxable person may object to an assessment within the time specified in the notice of assessment 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 assessment at any time.