Papua New Guinean companies and land groups will now be able to apply for a five-year tax exemption starting this year.

Legislation enabling the tax holiday passed all stages at yesterday afternoon’s sitting of the House of Assembly.

The five-year tax holiday was initially promised in last year’s Budget. The Minister for Finance, Mr Julius Chan, emphasized that the exemption would apply only to wholly Papua New Guinean groups.

Mr Chan stated that the Finance Department was also reviewing the possibility of a graduated exemption for joint ventures with at least 75% local ownership.

“The Government is determined that the benefits of this should only go to genuinely indigenous businesses,” Mr Chan said, adding that “non-locals should not be able to use ‘front’ companies to evade their tax obligations.”

He mentioned that the Chief Collector of Taxes would be given the authority to disallow companies from exemption if they failed to meet the wholly local ownership criteria.

Only groups registered under the Land Groups Act and companies registered under the new Companies Act would be eligible to apply for the exemption.

Mr Chan admitted it was not yet possible to determine the impact of the exemption on Papua New Guinea’s revenue but expected “some minor reduction.”

“But I am convinced that the measure will help many local businesses to be established and to expand, thus strengthening our income tax base in future years,” he added.

“The aim of this tax holiday is to help local businesses consolidate their operations and overcome difficulties in securing managerial, financial, and technical expertise,” Mr Chan continued.

“It has taken the expatriate community, with its traditional background of commerce, many years to establish itself in Papua New Guinea, and many expatriates still find it hard enough to survive.”

“The Government has made it clear that it wants much greater involvement of indigenous Papua New Guineans in business and to achieve this, bridge the great historical gap, special measures are required,” he said.

The new legislation also exempts two other groups from income tax:

Foreign experts working in PNG

Papua New Guinean pensioners living in Australia and returning to PNG

The Shadow Finance Minister, Mr John Middleton (Sumkar), urged the Government to exempt joint ventures with more than 75% local ownership from tax for one financial year.

Mr Middleton stated the Opposition would have moved an amendment if the Government had not agreed to the bill as quickly as possible.

Mr Middleton also revealed he was the director of such a joint venture and warned that without exemption, companies might face a 33.3% company tax, potentially tipping their balance sheets into the red.

Exemption for joint ventures will be at the discretion of the Chief Collector of Taxes, he noted.