Facts and figures: An overview of the country’s tax laws

Businesses are able to operate in Papua New Guinea in the forms of: sole proprietor; partnership; joint venture; trust; or company. This list is not exhaustive, as PNG landowners are allowed to form companies or trusts to hold their interest in resource projects. There are specific rules for such entities. CORPORATE ENTITY REGULATIONS Most businesses in PNG are registered under the “company” status. This is mainly due to the distinct advantage offered by this structure, such as limited liability to shareholders, the ability to raise capital with ease, and sound governance. Companies operating in PNG are subject to various regulations, principal among them being the Companies Act of 1997, the Business Names Act of 1963 and the Investment Promotion Act of 1992. Formation of a company: The following are pre-requisites for forming a new company: a name to operate; one or more shares; one or more shareholders having limited or unlimited liability; and one or more directors. Any body that satisfies these pre-requisites is able to apply to the Registrar of Companies (ROC) for incorporation of a company by completing the prescribed forms and paying the fees. It can take 5-10 days to incorporate a company.

The general rules specified in the act apply to a company in relation to day-to-day management, unless the company has adopted a specific constitution. There is no compulsory requirement to adopt a constitution, however. Maintenance of records: Every company is required to maintain the company records at its registered office for a minimum period of seven years. The following documents are required to be maintained: (a) the company constitution (if applicable); (b) minutes of all meetings and resolutions of shareholders; (c) an interests register; (d) minutes of all meetings and resolutions of directors and boards of directors; (e) certificates given by directors under this act; (f) the full names, addresses, and postal addresses of the current directors and secretary; (g) copies of all written communications to all share holders or all holders of the same class of shares, including annual reports; (h) copies of all financial statements and group financial statements required to be completed under the act; (i) the share register.

Shares & rights: There are generally two types of shares that can be issued: ordinary and preference.

An ordinary share includes the right to vote, equal share in the dividends and distribution of the assets.

Preference share may carry preferential rights with regard to the distribution of income or capital, as well as special or limited rights to vote. It may be redeemable at the option of a holder or company.

Registration of overseas company: Foreign companies who carry on business in PNG must apply for registration of a branch with the ROC. They have to fill a separate form, enclose their incorporation documents, provide the details of their directors and shareholders, and pay a fee.

Foreign companies are not required to have a resident director. However, they must appoint a resident agent who will be responsible for company actions.

Carrying out business: The following activities are considered as carrying out business under the Companies Act: (a) establishing or using a share transfer office or a share registration office in the country; (b)administering, renting, managing, or otherwise dealing with property in the country as an owner, agent, legal personal representative, or trustee, whether by a servant or agent or otherwise; (c)maintaining an agent, employee, or officer for the purpose of soliciting or procuring or entering into orders, arrangements, agreements, or contracts (whether conditional or not), whether or not the agent, employee, or officer is continuously resident in the country; (d) maintaining an office, agency, or branch ( however described), whether or not the office, agency, or branch is also used for one of those purposes by another enterprise; (e) making an application for, or being issued, any permit, licence, lease or authority issued for commercial purposes by the state or by the national government, a provincial government or any other level of government; (f) a unit, department, agency or instrumentality of the state or of a provincial government; (g) any body, authority or instrumentality established by the state or under an act.

A foreign company which is considered as carrying on business is required to register as an overseas company with the ROC. IPA certification: Companies or any other entities with foreign shareholdings of 50% or more (“Foreign Enterprise”) are required under the IPA Act to obtain a certification from the Investment Promotion Authority (IPA), if they satisfy the carrying on business condition under the IPA Act.

This definition is more exhaustive than the definition under the ROC Act and also includes any business involving “undertaking a building, construction or assembly project or an activity numbered 8324 and 8329 in the ISIC, that will not be completed within six months.’’ The foreign enterprise is required to provide its nature of business, a detailed business plan, budgets and forecasts, details of ownership, proof of registration with ROC (if the body in question has the status of a company), copies of business agreements along with a prescribed form and prescribed fee. The certification process normally takes 2-4 weeks. The certificate will indicate the activities the company is allowed to indulge into and the details of their operating locations.

Once the certification is granted the foreign company is required to lodge a bi-monthly report indicating its economic activity, employment statistics and shareholding details. Any change in the operating locations, activities, name or shareholding is required to be intimated within one month of the date of such change. If there is a major change in shareholding then the changes are required to be notified within 14 days and the foreign company is required to apply for re-certification. Winding up/closure of business: Liquidation of locally incorporated companies may take 2-5 years, whereas a branch of an overseas company can be wound up within six to twelve months. PNG TAX REGULATIONS Businesses operating in PNG are generally required to adhere to the following main tax legislations: (a) the Income Tax Act, (b) the Goods and Services Tax Act, (c) the Customs Act, and (d) the Income Tax (International Agreements) Act.

The Income Tax Act specifies two types of rules: specific and general. The specific rules apply to taxpayers involved in mining, petroleum and designated gas projects. The general rules of taxation apply to all other taxpayers. The act also provides for various incentives to promote certain type of industries. These include citizen training and employment, and rural and export development. CORPORATE TAXATION Residence Rules: Residential status of a taxpayer determines the extent of tax that he is required to pay. A company is resident in PNG if: it is incorporated in PNG; it is not incorporated in PNG but it carries on business in PNG and has either its central management or control in PNG; or its voting power is controlled by shareholders resident in PNG.

This would imply a branch of an overseas company is generally considered a non-resident and a locally incorporated company is considered resident. Nonresidents are required to pay tax only in relation to their income sourced within PNG, whereas residents are required to pay tax on their worldwide income. Permanent establishment: Non-resident companies are only required to pay tax in PNG if the activities they are carrying out constitute a permanent establishment. The act provides that a person is considered to have a permanent establishment in PNG if he has a place in PNG: (a) at or through which he carries on business; (b) where he carries on business through an agent; (c) where he is installing substantial machinery or substantial equipment; (d) where he is engaged in a construction project; (e) where the person is engaged in selling goods manufactured, assembled, processed, packed or distributed by another person for, or at, or to the order of, the first-mentioned person and either of those persons participates in the management, control or capital of the other person or another person participates in the management, control or capital of both of those persons; place where the goods are manufactured, assembled, processed, packed or distributed.

It is very clear that the above rules are exhaustive and encompass all business activities. However, where a company is resident of a country with which PNG has entered into a double tax treaty then the Income Tax (International Agreements) Act provide that the provisions of such treaty will take precedence over the local tax provisions. Under most of the tax treaties which PNG has entered into, the definition of Permanent Establishment is narrow and allows the foreign country to apply the same to its advantage and reduce or vary its PNG tax liability. Taxable income: Companies are generally required to pay tax on a net income basis, which means that the business expenses are allowed as a deduction from gross income to arrive at a net taxable income. In the case of foreign companies and certain other types of companies operating in the country, an option to pay taxes on a deemed income basis is allowed. There is no tax payable on capital income and that means that PNG does not tax capital gains. Tax rate: Residents are required to pay a tax at 30% of their taxable income and non-residents are required to pay tax at 48% of their taxable income. Certain incentive rate Primary Production income is taxed at 20% only. Special rates of tax apply in relation to resource companies and are detailed below. Mining companies are taxed at 30% for resident firms and 40% for non-resident firms; for petroleum companies the rates are 30% for both; and for designated gas projects, it is 30% plus additional profits tax of 7.5-10% on cash profits for both resident and non-resident firms. Withholding Tax: Withholding taxes are a very important source of tax revenue for PNG. It protects the taxing rights of PNG in relation to income which are sourced from within PNG and in some cases it applies even if the foreign company does not have any permanent establishment in PNG. Examples of such withholding taxes are dividends, interests, royalty, and management fee.

Other types of withholding taxes which are common in PNG and where tax is applied at source are salary or wages tax, paying authority tax, foreign contractors withholding tax, non-resident insurer’s tax, overseas shipper tax, etc. Dividend (Withholding) Tax: Dividend paid by a resident company is generally subject to a 17% withholding tax and this tax is final. The recipient of the dividend is entitled to a rebate on dividends. For a recipient company it means that the withholding tax is only applicable on the net dividends received.

Concessional rates of withholding tax apply under following circumstances: (a) Dividends paid by a resident mining company are only subject to 10%; (b) Dividends paid to a shareholder who is resident of treaty country may be reduced to 15%;

No liability to dividend withholding tax will arise if the recipient is exempt from income tax, is an authorised superannuation fund or is a non-resident superannuation fund. Interest (Withholding) Tax: Interest paid or credited by a financial institution or a company is generally subject to 15% withholding tax except where it relates to payment made to a non-resident financial institution by mining, petroleum and designated gas companies. The rate of withholding tax is 10% where the payee is a resident of country with which PNG has entered into a double tax treaty. Royalty (Withholding) Tax: Royalty payments attract withholding tax at varying rates depending on the nature of payment and location of recipient.

Royalty paid to non-residents are subject to withholding tax of 10% of gross royalty or 48% of net royalty (gross royalty income minus expenses) where they opt for net-income basis of taxation.

The withholding tax rate is 30% where the recipient of royalty is an associated person. No option to pay tax on net income basis is allowed in this case.

Payments of certain prescribed royalty to resident companies engaged in mining and petroleum exploration, fisheries and timber operations are subject to 5% withholding tax. Management Fee (Withholding) Tax: Payments of management or technical fees to non-residents are subject to a withholding tax rate of 17%. The rate of tax can range from 0-15% if the recipient is a resident of a country with which PNG has entered into a double tax treaty.

However, management fees payable above 2% of assessable income/allowable deductions need specific approval and the payer is required to submit a copy of the management fee agreement to the IRC before the end of its financial year. Paying Authority Tax: Certain prescribed payments made to a resident payee are subject to a 10% Paying Authority Tax. The payments include construction and related services, such as architectural surveying, engineering, cleaning and maintenance, security, gardening, advertisement, entertainment and professional services. No withholding tax applies where the payee produces a Certificate of Compliance (COC) from the IRC. XI. Foreign Contractors Withholding Tax (FCWT): Foreign contractor provisions contained in the Income Tax Act form an important means of collecting tax from foreign companies which are rendering various services in PNG.

These provide that a foreign contractor who derives income from a prescribed contract is liable to pay tax on that income. Prescribed contract is defined as a contract or sub-contract for “prescribed purposes”, and include: (a) the installation, maintenance or use in Papua New Guinea of substantial equipment or substantial machinery; (b) the construction in Papua New Guinea of structural improvements or other works, including the construction of roads, including bridges, culverts or similar works forming part of a road; (c) the erection of buildings, fences or similar improvements; (d) the clearing or draining of land; the construction of ports or port facilities; (e) the construction of facilities for the provision of water, light, power or communication; the provision or improvement of transport facilities of any kind; the use of, or right to use, in PNG, any industrial, commercial or scientific equipment including any machinery or apparatus or appliance, whether fixed or not, and any vehicle, shipping vessel or aircraft; the provision in PNG of professional services or services as an adviser, consultant or manager, including services in conjunction with the purposes set out in paragraphs (a), (b) or (c) of this definition.

The PNG resident entity is considered to be an agent of the foreign contractor. It is required to lodge a copy of the signed contract within 14 days of the date of signing, along with a completed foreign contractor tax file application number, request a formal determination and not make any payment to the foreign contractor until such time. On obtaining the formal determination it is required to deduct and remit the 12% FCWT from the payment made to foreign contractor, within 21 days of the end of month in which such payment is made.

A total of 25% of the gross income under the contract is deemed to be derived in PNG and is subject to the non-resident tax rate of 48% (12% of gross income). Where the foreign contractor is a resident of a country with which PNG has entered into a double tax treaty and such treaty contains an anti-discrimination clause then it is possible to make an application to the IRC and adjust the rate of tax to up to 7.5%.

The foreign contractor is able to opt for actual assessment basis of taxation by making a written application to the IRC. In this case the tax is applicable at 48% on actual net profit. However in arriving at the net profit any general administration and management expenses incurred are restricted to 5% of gross income. Non-Resident Insurer’s Tax: Where a resident or non-resident company enters into a insurance contract with a non-resident insurer and either the insured property is situated in PNG at the time of making the contract, or insured event can only take place in PNG, then premium is deemed to be sourced in PNG and subject to a withholding tax of 4.8% of gross income or 48% on actual net income basis.

Where the PNG agent or representative of nonresident insurer is instrumental in ensuring the entry of an insured person into the contract then irrespective of where the insured property is situated, or the insured event takes place, the premium is deemed to be sourced in PNG and subject to NonResident Insurer Tax. Overseas Shipper Tax: Where a non-resident shipper carries good or passenger outside of PNG, 5% of gross amount paid or payable is deemed to be sourced in PNG, and subject to non-resident tax rate in case of companies. The commissioner may exempt the non-resident shipper from the PNG tax if a reciprocal arrangement is in place. International Tax Agreements: PNG has entered into Double Tax Avoidance Agreements with nine countries, namely Australia, Canada, China, Fiji, Germany, Malaysia, Singapore, South Korea and the United Kingdom. These treaties override the domestic provisions and hence the residents of treaty countries benefit out of such agreements.

A double tax treaty with Indonesia has been finalised but is awaiting ratification from the parliament. The withholding tax rates prescribed by these treaties are indicated below. WITHHOLDING TAX RATES Tax incentives: The Income Tax Act provides tax incentives to businesses operating in PNG depending on the nature of industry, location of their business and nature of activity they engage in.

A 200% deduction is available for any staff training costs incurred by employers. The deduction is allowed of salary or wages paid to registered apprentices and for citizen employees attending full-time courses at a prescribed training institute, as well as to training officers involved in full-time training activities and not engaged in deriving income from an employer. Furthermore, a 200% deduction is available for eligible expenditure incurred on export market development.

A 150% deduction is available for expenditure on research and development.

A 100% accelerated depreciation is allowed for expenditure on new plants or articles used directly for agricultural production, fishing operations, scuba diving or snorkelling operations.

A 100% accelerated depreciation is also allowed for expenditure on industrial plants not previously used in PNG. “Industrial plant” refers to a plant with an effective tax life exceeding five years and used in the manufacturing process. The deduction cannot result in a tax loss.

A 100% outright deduction is allowed on expenditures toward the acquisition and installation of solar heating plants for use in deriving income.

A 55% accelerated depreciation on new plants or articles acquired by hotel and other short-stay accommodation facilities and restaurants.

A 30% accelerated depreciation is allowed for expenditure on new non-oil fired plants (not powered by imported petroleum products or LNG).

A 20% accelerated depreciation is allowed for expenditure on new plants and equipment with an estimated useful life of more than five years.

Outright deductions are allowed for certain capital expenditures for agriculture. Certain businesses involved in the exploitation of non-renewable resources like mining, petroleum, gas and forestry companies in specified rural development areas are exempt from income tax on their net income for 10 years from the year of commencement. A licensed bank is entitled to a tax credit for specified expenditures incurred on developing banking in rural and underpenetrated areas.

Certain taxpayers engaged in mining, petroleum, gas, primary production or tourism are allowed to claim from 0.75% to 1.5% of their assessable income towards prescribed infrastructure development costs. Mining, petroleum and designated gas projects are entitled to special accelerated deductions in relation to allowable exploration expenditure (AEE) and allowable capital expenditure (ACE). These deductions cannot create a tax loss. TAXATION OF OTHER ENTITIES Partnership: The net income earned by a partnership is charged to the partners at the proportional rate of their share in the profits or losses in the partnership. Joint venture: Joint ventures (JVs) are commonly used by entities who come together to work on fixedterm projects. The taxation of a JV depends on if it is incorporated or unincorporated. An incorporated JV is taxed similarly to a company and an unincorporated JV is taxed similarly to a partnership. Trust: A trustee of a residential trust is taxed on net income of the trust at the rate of 30%. The beneficiaries are generally subject to income tax when the trust makes a distribution. Landowner Resources Trust: Landowner Resources Trust refers to a trust formed for holding the interest of landowners in resource projects and approved by Minister of Finance. Net income derived by a landowner resources trust is taxed at 25%. Superannuation fund: The resident superannuation fund is taxed similar to a trust, but it pays a reduced tax at the rate of 25%. PERSONAL TAXATION Residence rules: An individual’s residential status for tax purposes is determined by three factors: (a) Whether an individual has exceeded 183 days spent in PNG in a calendar year; (b) Whether the individual intends to stay in PNG. Examples are those who have applied for permanent residence or hold a long-term work permit; and (c) Whether an individual has family, social and economic ties that identify his usual place of abode as being in PNG.

If any one of the above tests is satisfied, then the individual is considered as a tax resident and required to pay tax on his worldwide income by applying resident tax rates. Where an individual does not satisfy any of the above tests he will be considered a nonresident and required to pay tax only on PNG-sourced income by applying non-resident tax rates.

Where an individual is resident of a certain countries with which PNG has entered into a double tax treaty and he satisfies certain additional conditions then he may not be liable to tax in PNG.

An individual employee is required to furnish to his employer a salary or wages declaration at the time of commencement of his employment. In this declaration the employee is required to state his residential status, details of his dependents, and allowances or benefits received by him. The completed form must be signed both the employee and employer and lodged with the Internal Revenue Commission (IRC) on or before the due date of next monthly remittance of salary or wages tax.

Where an employee has indicated that he is a nonresident, the employer is required to apply the nonresident tax rates in calculating the salary or wages tax. Where he has indicated residency then tax rates for residents need to be applied.

An employee whose usual place of abode is outside of PNG is generally required to provide evidence to support his contention. He should be able to show that his habitual abode is outside of PNG, that he has closer personal and economic ties with a country other than PNG (such as maintaining a family outside of the country) and there is nothing to show that he intends to reside in PNG permanently.

Where a resident has filed a dependent declaration, he is entitled to a deduction of following dependent rebate from the tax calculated above: one dependent, PGK450.06 ($214); two dependents, PGK750.10 ($357); and three or more dependents, PGK1049.88 ($499). The PNG government has proposed to increase the basic threshold from PGK7000 ($3331.30) to PGK10,000 ($4759). Housing benefits: Where an employer provides an accommodation to an employee then it is considered as a benefit provided to the employee. The IRC has prescribed values for the benefit based on the location, market value and rental derived. Housing allowance paid in lieu of accommodation: Housing allowance provided in lieu of accommodation is fully assessable unless a variation is obtained. An employee is allowed to make an application for variation and provide details of actual cost of accommodation incurred.

Once satisfied the commissioner may direct that only the excess allowance over actual cost of accommodation may be taxed. Housing allowance is not assessable for citizen employees taking part in an approved low-cost housing scheme. Further benefits: (a) Motor vehicle: If an employer provides a motor vehicle to an employee then this is considered a benefit. (b) Meals: When an employer provides cafeteria meals it is considered as a benefit and taxed to the employee at PGK780 ($371.20) per annum. For all other types of meals the actual cost of meals is treated as benefits provided. (c) Public utilities: here an employer provides an allowance to the employee towards public utilities such as electricity, water, gas, sewerage, land rates, and so on, then it is fully taxable to the employee and deductible to the employer, provided it does not exceed actual cost. Where the employer directly pays to the service provider then it is not deductible to the employer and not taxable to the employee. (d) Telephone: Telephone expenses are generally considered private expenses and fully assessable to the employee, however, where they are work-related then a variation will be considered. (e) Security and Domestic Servants: Where an employer provides an allowance to the employee towards security and domestic servants then it is fully taxable to employee and deductible to employer provided it does not exceed actual cost. Where the employer directly pays to the service provider then it is not deductible to the employer and not taxable to the employee. (f) School fee: Where an employer pays a school fee allowance to the employee then it is fully deductible for the employer. Any excess amount over the actual cost of the school fee paid is taxable to the employee. Where the employer directly pays to the service provider then it is fully deductible to the employer, except where it is in relation to tertiary studies. Under such circumstance it is not taxable to the employee. Superannuation: An employer with 20 or more employees is required to contribute towards superannuation for citizen employees at prescribed rates. There is no compulsory contribution requirement for expatriate employees.

Employees are not allowed to make tax-free contribution to superannuation funds; however, tax on employer contribution can be deferred or reduced depending on the period of contribution and age of the employee. VI. Gratuity and terminal payments: Gratuity and terminal payments in relation to the period prior to 1 January 1993 are taxed at a concessional rate of 2%. For any payments thereafter, the employee is allowed to spread the payments to last 26 fortnights and is taxed at applicable marginal rates. Tax rebates: An employee is allowed to claim rebate on certain expenses incurred by him as below. Education expenses incurred in relation to a dependent student child can be claimed for rebate up to a maximum limit of the lesser of 25% of net education expenses or PGK750 ($357) per child. To do so, a claim must be lodged with an income tax return within 2 months of the calendar year.

Any expenses necessarily incurred in the course of employment can also be claimed for rebate, with a limit of 25% of expenses, provided they do not exceed total salary, and it can be claimed by the same means as education expenses. OTHER TAXES I. Goods and services tax (GST): GST is applicable on most supplies of goods and service in PNG. The standard rate of GST is 10%. Certain supplies such as exports and supplies to a resource company qualify as GST-free supplies. Certain supplies like medical, educational and financial supplies etc qualify as exempt supplies. Businesses making GST-free supplies are allowed to claim input GST incurred whereas businesses making exempt supplies are not allowed to claim input GST credits.

The minimum threshold for compulsory registration was recently increased from PGK100,000 ($47,590) to PGK250,000 ($118,975). Companies may register each branch separately for GST and apply for group registration. Registered entities can opt for payment basis of accounting where the total turnover did not exceed/is not likely to exceed PGK1.25m ($594.875) in the preceding 12 months. II. Training levy: All businesses that have an annual payroll exceeding PGK200,000 ($95,180) in a calendar year are required to lodge a training levy return and pay a training levy calculated at 2% of the total payroll. Deductions are allowed for qualifying expenses incurred for training citizen employees and donations made to certain training institutions. III. Customs duties: Customs duties are imposed on the cost, insurance and freight (CIF) value of imports on prescribed items and varying rates of duty is charged. Special exemptions apply in relation to PNG LNG project imports. IV. Excise duties: Excise duty is imposed at varying rates on certain locally manufactured and imported goods as well as goods deemed to be luxury items. Special exemptions apply in relation to the PNG LNG project and related manufacturing and imports. REPORTING REQUIREMENTS Businesses in PNG are required to comply with the various tax and statutory obligations. A tabular summary of some of the most common obligations is provided below. I. Tax analysis: Much of the focus in the recent budgets that were presented by the finance ministers of PNG was aimed at facilitating foreign investments into the growing resources sectors of the country. A quick glance at the last five budgets will show that the guiding policy matters have historically been increasing tax compliance and collection through the effective use of technology.

With the construction phase of the PNG LNG project going in full swing and few more LNG projects in the pipeline, tax compliance and collection remains a big concern and challenge for the IRC. In line with this larger objective the IRC has recently carried out an organisational restructure to focus on priority areas and use the available expertise to the fullest.

The IRC issued a transfer pricing circular late in 2011 and this was followed by new disclosure requirements starting from 2012. It is understood that the IRC has a three-year roll-out plan under which it will focus initially on the collection of information, followed by review of information and finally leading to transfer pricing audits.

The IRC is planning to introduce a new information management system known as the standard integrated government taxation administration system (SIGTAS) from August 2012, and this will assist in increased compliance and collection. II. Facilitating foreign investments: Owing to the multibillion-dollar LNG project, a great deal of media attention in the recent years has been dedicated to PNG within the international business community. To better attract investment and facilitate this trend, the government has taken several measures in recent years, including: (a) Modernising the work permit and visa delivery system to allow for easy movement of skilled labour into the country to meet the growing demands of business; (b) Separating PNG Customs from the IRC to facilitate trade, increase revenue collection and protect the border and community; (c) Introducing a 7-year Tariff Reduction Programme starting in 2012, which aims to reduce the items within the prohibitive and protective tariff rates and apply uniform Customs/excise rates; (d) Promotion of tourism and related industries by way of tax incentives; (e) Proposing amendments to the Companies Act and Business Names Act to facilitate electronic filing, increase compliance, simplify registrations and improve corporate governance. III. Encouraging savings: To make the best use of the kina earned by the government as well as PNG residents from the booming economy, the following measures have been introduced: (a) To increase in the income tax exemption threshold for loans advanced under the Employee First-Time Home Buyer scheme from K75,000 ($35,690) to K400,000 ($190,360) and stamp duty exemption threshold from K210,000 ($99,939) to K500,000 ($237,950); (b) To establish a sovereign wealth fund wherein the state revenues arising from the PNG LNG and other resource projects will be received and used for key priority areas; (c) The promotion of the use of Property Unit Trust as a vehicle for investment, by reducing the rate of stamp duty on transfers and allowing them to invest overseas; (d) Encouraging banks to establish branch in rural areas by extending the tax concession to 2017. (e) Devising plans to strengthen the financial markets by facilitating superannuation funds to invest heavily. IV. Improving infrastructure: Education, infrastructure, health, law, order and justice have all been identified as key priority areas for the government and these sectors have seen increased budget allocations in recent budgets.

In the 2012 budget the government has proposed tuition-fee-free education up to year 10 and a 75% subsidy for years 11 and 12 apart from various other measures to promote education.

The Highland Highway Infrastructure Tax Credits were extended for taxpayers carrying out emergency repairs to resource sector.

Resource companies are encouraged to ensure full rehabilitation of project site and restoration of environment, and this is now allowed as a deduction from their future project income in PNG. It is expected that the above objectives will continue to take centre stage in shaping the future taxation measures. These include: (a) The reinvestment of wealth generated by businesses, such as increased role for Port Moresby Stock Exchange, encouraging listing and regulating the financial market; (b) The Improvement of the Financial Reporting Framework. Though PNG has adopted the International Financial Reporting Standard (IFRS) in full, the financial reporting framework has a long way to go. The main issue is IFRS is only recommendatory for most of the non-reporting entities.

The Accounting Standard Board (ASB) is expected to play an important role in issuing guidance notes for non-reporting entities in active consultation with CPA PNG and the Auditor General office. This will help to bridge the expectation gap.