A tax on mobile phones in PNG?
The government of Papua New Guinea (PNG) is considering imposing a mobile phone tax, in order to generate revenue. This blog post examines the proposed measure and its potential impacts.
In the 2019 budget handed down late last year, the PNG government suggested that it would use 2019 to look into the possibility of introducing a ‘turnover tax’ on mobile telecommunication companies. It outlined two reasons for this: that these companies were making above average profits, and that complex pricing schemes in the sector made it difficult for the Internal Revenue Commission (IRC) to adequately assess and audit them. Complex pricing schemes such as transfer pricing can be used by multinational companies to shift profits offshore. In the mobile telecommunication space in PNG, Digicel holds an effective monopoly as it has 92 per cent of market share (see page 19 of this recent report) and is the only network that covers rural and remote locations. There appears to be no publicly available information on how much, if any, company tax it pays.
Turnover includes most income, but excludes income not directly related to running the business, like interest. Turnover is relatively easy for the IRC to track. Additionally, there have been several recent years of poor growth and economic hardship – revenues have fallen consistently since 2013, as have employment and government spending on public services. There is also a large amount of debt to repay in coming years, and spending has already been cut substantially. New taxes, like the turnover tax on telecommunication companies, would improve the current budget situation by creating revenue.
However, turnover taxes encourage companies to do as much as possible in-house. Instead of outsourcing a service to a local business (which would involve a taxable transaction), companies have an incentive …read more