VAT, GST and Sales Tax in Papua New Guinea

Summary

Name of the tax Goods and services tax (GST)
Date introduced 1-Jan-04
Trading bloc membership Asia-Pacific Economic Cooperation (APEC)
Administered by Internal Revenue Commission (IRC) (http://www.irc.gov.pg)
GST rates
Standard 10%
Other 0% and exempt
GST number format TIN999999999
GST return period Generally monthly; periods of up to 6 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

Scope of the tax

GST applies to the following transactions:

  • 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 an entity 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

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.

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

An entity 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 aggregate 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.

Branch registration. 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 (see Group registration).

Nonresident entities. GST applies to taxable supplies and to tax­able importations made by nonresidents. Branches of foreign enti­ties carrying on taxable or other activities in PNG are required to register and charge GST with respect to their supplies.

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 of the following conditions are met:

  • The supplier is a nonresident.
  • 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.

Registration procedures. After a company is registered with the Investment Promotion Authority, it should apply to the IRC for a Taxation Identification Number (TIN). The Form TIN1 application requires various details of the enterprise and the com­pany must attach proof of identity of the authorized signatory. There is no online filing facility, however, a scanned email copy should be acceptable.

Late-registration penalties. Penalties and interest may be imposed for late registration or failure to register (also, see Section I).

Tax representatives. When a GST-registered person dies, or an entity 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.

Digital economy. There are no specific rules relating to the taxa­tion of the digital economy.

Deregistration. An entity that ceases to carry on business may request in writing that the Commissioner General of Internal Revenue cancel its GST registration. An entity must notify the PNG IRC that it is no longer entitled to be registered within 21 days after ceasing operations. An entity 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.

GST rates

The terms “taxable supplies” and “taxable importations” refer to supplies of goods and services and importations that are subject to GST. Taxable supplies are supplies subject to the standard rate of GST, which is 10%.

Zero-rated supplies are supplies not liable for GST that do give rise to a right to claim input tax credits for GST included in acquisitions related to the supplies.

Examples of zero-rated supplies of goods and services

  • Sale of going concerns
  • Supplies of goods and services to foreign aid providers
  • Supplies of goods and services, other than cars, to resource companies for use only in carrying on resource operations
  • Supplies of goods and services to nonprofit bodies, which are religious, charitable or community 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

Exempt supplies are supplies that are not liable for GST, but do not give rise to a right to claim input tax credits for GST included in acquisitions related to the supplies.

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. Not applicable.

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.

Accrual basis of accounting. When an entity registers for GST, it automatically goes on an accruals (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.

Continuous supplies. 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.

Imported goods. GST is payable for imported goods at the time of importation. From 1 January 2016, 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.

Temporary import of goods. 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).

Recovery of GST by registered entities

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.

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 (non-creditable acquisitions). 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. However, acquisitions related to making some exempt supplies (for example, educational supplies) are credit­able. 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.

Refunds. If the amount of input tax credits in a period exceeds the GST payable in the same period, the excess amount is technically refundable to the taxpayer. However, in practice, it is often neces­sary to first satisfy the IRC that the refund is valid.

Preregistration 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 pre­registration acquisitions may not be claimed as input credits.

Recovery of GST by non-registered businesses

Only entities that are registered for GST may claim refunds of GST incurred on acquisitions in PNG. In general, entities (including nonresidents) that make acquisitions in PNG for the purpose of carrying on taxable activities may register for GST if necessary.

Invoicing

Tax invoices and adjustment notes. 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.

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.

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 Papua New Guinea. Zero-rating applies if the goods are exported within 28 days, unless unforeseeable circumstances delay the shipment of the goods.

Currency on invoices. All invoices must be expressed in Papua New Guinea kina.

GST returns and payment

GST return. 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).

GST liabilities must be paid in Papua New Guinea kina.

Effective 1 January 2015, company directors have personal lia­bility if the company defaults on its GST obligations.

Special schemes. Not applicable.

Electronic filing and archiving. The IRC has introduced a basic electronic filing option. It is necessary to scan the signed paper form and attach it to an email with details of the electronic funds transfer. 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.

Annual returns. Not applicable.

Penalties

A penalty may be imposed for the late filing of a GST return. Penalties range from fines not exceeding PGK5,000 on the first occasion and can increase to as much as PGK50,000, depending on the circumstances of the case. Court proceedings may be instituted against a taxpayer in the National Court to recover taxes and penalties.