A SME manager’s note to the IRC Commissioner:
Tax Fraud by Asians!
Words By William Kep | Source: Tokout Tokstret | Sept 28, 2020.
Firstly, I would like to congratulate you for your recent appointment to the IRC Commissioner’s post.
I help manage a small PNG owned business in Port Moresby and the below is some feedback as a taxpayer.
I can see many changes happening especially in the side of Tax enforcement under your leadership and I would like to give you some heads and tips on the cheating of the Tax System in PNG by foreign owned, especially Asian owned businesses in PNG at the moment.
These businesses are draining away much needed cash from our country and I as a citizen feel my duty to alarm the bells.
1. They register a business in Malaysia, Singapore, Hong Kong or Indonesia where the tax rates are low and where they procure their materials and supplies to be utilized and sold in PNG. Their fully owned overseas companies procures the supplies and sells them to their PNG Companies at inflated (5x to 3x the) prices.
The PNG Company declares a loss or very small profit year in –year out, whilst their overseas companies declare a profits every year. They pay zero tax in PNG and pay only 10% tax on profits of the overseas companies. This is happening right under our noses especially in fast moving consumer goods sector and the building industry where the prefabricated building materials are coming from.
A lot of cash and foreign currency (US$) is going out of the country under these scheme. Thus this is resulting in the PNG Kina being weaker every day.
Further no tax is collected and the PNG government has no money to pay for education, medicines and provide good roads and services.
Since there is no money in the government system, we borrow from the Asian Countries. We forget that 50% of the money we borrow is legally ours in the first place.
2. All the Bangladeshi and Chinese trade stores, Kaibars and other outlets do not charge the sales on the eftpos as sales (fully) but rather as cash out by the customers. For example if I were to buy K100 worth of goods at the Bangladeshi trade store using my BSP Kundu Card, the counter person would dial K90 cash back and K10 sales.
He won’t give me the K90 as cash but take it as his sales. The only thing is that the tradestore’s bank statement will register K90 as cash paid out and K10 sales. Thus, his store will pay the applicable tax on the K10 only and not the full K100 sales, which I spent at the store.
3. Because of the very lax policing by the Investment Promotion Authority and the Registrar of Companies in PNG, foreigners are allowed to register PNG Local companies at will and ease.
Without going into the Companies Act and Investment Promotion Authority Act regulations and requirements, let me point out how foreigners are abusing the slack system to avoid and not pay their rightful tax in PNG.
As soon as the tax liabilities (GST, Corporate income tax and Salaries and Wages Tax) keep building up and the IRC send them demand notice and tries to take legal action, the foreigners immediately register a brand new company and continue operate their business.
They send notices to their customers that they are now operating under a new company name, etc. The old Company is just a name that is ignored and forgotten about.
4. The same foreigners and the Asians control the industries including the distribution of every day fast moving consumer goods (FMCG) and building materials. We do not know what the trading terms among themselves are. What prices do they set for their own countrymen or associated companies.
The manufacturer is them (foreigners) in Asia, the importer is them also, the distributor is them also, the transportation company is them also, the wholesaler and the retailing shops are also them.
These may sound unlearning to the everyday Papua New Guinean but when one group, associated, closely linked and collaborated businesspersons whose sole interest to be make profits and more of it and pay zero tax, the IRC cannot collect anything along the way. They work together to hide the selling and buying points in the accounts will not show where on transaction ends and another begins to determine the profit or sales and apply the rightful tax.
5. The IRC must organize public forum and invite the national and long established PNG businesses to gauge their views on the current taxation regime, the policing aspects of it and the compliance requirements. New changes have been made but more needs to be done and some of us willing participate help the IRC collect its rightful taxes and help our country grow.
Please note that I am NOT anti-Asian or racist. There some good genuine business people from Asia that conduct business within the rules and pay their rightful taxes. However, I have come across just too frequently scrupulous businesspersons from that region who want to try the short way out in doing business in PNG.
These are points for further investigation and review by those responsible and in authority.
by Eli Direye – Senior Research Analyst, Research Projects Unit, Research Department at Bank of Papua New Guinea, via linkin.
Leave the national SME aside as part of stimulus to help them navigate through this difficult time. The government should consider reviewing all its tax concessions to large mineral and gas companies. This is one of the main factors affecting national revenue.
Also, IRC should continue to raise its efforts on enforcing tax compliance: check the Asian companies in the retail and whole sectors that are suspected to evade tax through crafty means. For example, some Asian shops would record a large sum of your spending on purchases as cash back on the receipt when you make electronic purchases using a bank card.
Such cunning reports helps them to pay less in GST. A lot of such cases have been reported by disgruntled customers on social media in recent times. Tax authority should look out for such hints to deepen investigation and apply necessary penalties.
Besides, internal surveillance measures have to be tighten to ensure that tax collectors don’t compromise with busines to evade or underpay taxes: bribery must be annihilated to enforce the full force of compliance.