GST S.65A

SECTION 65A of the GST Act – Payment of Tax in Special Cases

To all suppliers and service providers to Government Departments including the State-Owned Enterprises; the Internal Revenue Commission’s (IRC) intends to issue GST withholding Notices under Section 65A of the GST Act– Payment of Tax in Special Cases.

Why is it important to issue a Section 65A notice?

GST, is not an expense to the business, it is passed on along the supply chain where value is added and eventually borne by the final consumer. It is important that persons conducting businesses are registered for GST and correctly accounting and pay GST to the IRC

What is GST?

A Goods and Services Tax or GST is an indirect tax, which is imposed on the sale of all goods and services in Papua New Guinea and on the importation of goods into Papua New Guinea. GST is imposed at a rate of 10% on the value of the goods and services sold (or goods imported).

Three Steps to understanding and accounting for GST

  • Step 1) GST is charged by a registered person on the provision of goods and services. GST charged is called output debit
  • Step 2) Registered persons purchasing goods and services will pay 10% GST. The GST paid is claimed as input credit.
  • Step 3) GST payable or refundable is calculated by subtracting the GST paid (input credit) from the charged (output tax).

GST is not like Income Tax or Salary and Wages tax where tax is calculated on earnings. GST is a consumption tax that is ADDED to the selling price (including profit) of goods and services. Therefore, GST is not an expense to the business.
An example of reporting for sales including the GST charged and GST incurred in the GST return, G1 Form by a registered business

Total sales including GST chargedK11,000
GST you have charged  on sales – Output TaxK1000
Less GST you have paid to suppliers – Input CreditK750
You pay to IRCK 250

Why is it important to issue a Section 65A notice?

The Commissioner General may issue a notice to a person to withhold the GST charged by one or all of its suppliers and remit the GST to the IRC, under Section 65A GST Act 2007

Who will it affect?

A person who receives the Section 65A notice from the Commissioner General of IRC and their supplier(s).

When will it be implemented?

Currently, Section 65A notice has been issued to certain exporters of coffee and cocoa. The Commission has decided to extend to suppliers/ service providers to Government Departments and State-Owned Enterprises to address GST revenue leakages and improve tax compliance.

The IRC is currently working on the improvement of its business processes relating to GST refunds and Section 65A. Once work is completed the Commissioner General will issue Section 65A Notices to certain Government Departments and State Owned Entities that pay GST to their service providers for the provision of good and services.

What is the implication on the issuance of the Section 65A notice?

It changes how GST is accounted for and reported by the person receiving the notice and the supplier(s). The person receiving the notice is now required to file two returns; G1 Form – GST return to account for GST in its business operations and the G2, G4, G5, or G6 Form which is the remittance form for the GST it has withheld from its supplier(s).

Failure to comply with this notice would result in financial administrative penalties including possible prosecution imposed on the receiver of the Notice.

The supplier like all other persons who are registered for GST is required to file its return by the 21st day of the following month and declare its sales including GST being the GST incurred and the amount of GST that has been withheld. Since the GST charged has been withheld and remitted to the IRC, the supplier has not deducted his GST incurred input credit. Hence, the supplier would be entitled to a refund for the GST they have paid for their business activities on the basis that the supplier has incurred the GST and has provided the information/documentation to substantiate his refund claims.
For example;

Total sales including GST chargedK11,000
GST you have collected from sales – Output Tax remitted to IRCK1000
Less GST you have paid to suppliers – Input CreditK750
You should have paid to IRCK 250
Less: Section 65A PaymentK1,000
GST RefundableK750

How can the supplier claim its GST refund from IRC?

To claim your refund you are required to file your GST return each month declaring your sales including the GST charged, the GST incurred, and the amount of GST that has been withheld. You are also required to attach a supplier listing which could be an excel spreadsheet listing details of your expenses. Information required in the supplier listing includes, Name of the supplier, Taxpayer Identification Number (TIN), the amount incurred, the GST amount paid, nature of the expenses, and other information as required

Where to lodge your GST return, G1 Form, and Withholding form, G2 form?

All persons subject to Section 65A notices are required to lodge the G1 form, GST return, and G2 form, Section 65A withholding with payments at the IRC Head Office in Port Moresby.

Who to contact?

SUBJECTCONTACT PERSONTELEPHONE
NUMBER
EMAIL
Lodgement of returns,
G1 and G2 forms and payments
Mrs Helena Solien3226884solienh@irc.gov.pg
Lodgement of returns,
G1 and G2 forms and payments
Ms. Arua Naime3226714naimea@irc.gov.pg
GST RefundsDegemba Gigmai3226939gigmaid@irc.gov.pg
GST AdviceAnoko Sasi3226797sasia@irc.gov.pg
GST AdviceSteve Burke3226546burkes@irc.gov.pg

COLLECTING GST DIRECTLY THROUGH IFMS “NO TIN NO CHEQUE”

All current and future suppliers and service providers to the Government of PNG are hereby informed that the Internal Revenue Commission (IRC), through collaboration with the Department of Finance will collect the GST directly from the Integrated Financial Management System (IFMS) commencing 1 May 2021.

The IRC trialled the GST section 65A project with 16 agencies (some Government Departments and State Owned Entities) and have raised well over K20 million in the last 6 months. This was done manually.

At a small but significant event held on Monday 12th April at the APEC Haus, the Minister for Finance, Hon Sir John Pundari, launched what is dubbed as “GST Section 65A Notice” to be configured in the IFMS to facilitate the direct transfer of GST components directly to IRC on account of suppliers. This will be facilitated by the Department of Finance.

The automation is anticipated to increase efficiency and cohesiveness in collections and reduce administrative burden. It sets the tone for the path we want to embark on – to move away from laborious methods of collection by investing in technology.

We will have all 37 national government departments that currently use IFMS to participate as part of phase 1 next month, followed by statutory authorities in the second phase and sub national entities (provincial and district governments) in phase 3.

List of authorised GST section 65A withholders under this program

1Office of Governor-General22Office of Censorship Board
2Department of Prime Minister & NEC23Department of Defense
3National Statistical Office24Department of Education
4National Coordination Office for Bougainville25Department Higher Education, Research, Science and Technology
5Department of Finance26Department of Health
6Department of Treasury27Department of Community Development and Religion
7Office of the Registrar for Political Parties28Department Agriculture & Livestock
8PNG Fire Services29Department of Lands & Physical Planning
9Department of Foreign Affairs and International Trade30.Department of Mineral Policy and Geoharzards Management
10.Office of the Public Prosecutor31Department of Petroleum & Energy
11Pacific Institute of Leadership and Governance32Department of Information and Communications Technology
12Department of Personnel Management33Department of Transport
13Public Service Commission34Department Commerce & Industry
14Office of the Public Solicitor35Department of Labour and Industrial Relations
15Department of Justice and Attorney-General36Department of Works & Implementation
16PNG Correctional Services 37Department of Implementation & Rural Development
17Department of Police38Internal Revenue Commission
18Department of National Planning and Monitoring39Kumul Petroleum Holdings Limited
19PNG Electoral Commission40.National Fisheries Authority
20.National Intelligence Organisation41National Airport Authority
21Department of Provincial and Local Government Affairs42Kumul Consolidated Holdings Limited
* These agencies will not be affected by the IFMS configuration and will continue to use their current reporting systems to process the GST section 65A withholding.

Those who are engaged by the Government entities must also be aware that under this arrangement, all suppliers without a Taxpayer Identification Number (TIN) will have their payments on hold until being formally registered with the IRC.

The IRC and the Department of Finance will be working together to provide training and awareness to the 37 agencies on the changes in IFMS and the GST section 65A process. The 37 agencies will be advised when they are scheduled for the training and awareness.

The GST Section 65A Notice grants permission from the IRC for these government agencies to act on behalf of the IRC and withhold the payment of GST on their supplier invoices, which will then be remitted directly to the IRC.

Therefore, the IRC would like to stress that if any member of the public or contractor has provided an invoiced good or service to the agencies mentioned above after August 1st, 2020, the GST portion of your invoice will be withheld.

The above list will be updated once other government entities are served with the Section 65A notice.

Top

Quick links