PNG tax law provides for a number of tax incentives which are available to new and existing investors and taxpayers.
New industrial plant is eligible for increased depreciation up to 100% of cost. The taxpayer may elect the amount to be claimed in any year, but not so as to create a loss.
To qualify, the plant must have an effective life exceeding five years, and can be used by the taxpayer or any other person.
Expenditure on plant, or buildings for storing raw materials for finished products, also qualifies.
In the case of accelerated depreciation for agriculture and fisheries, expenditure on new plant or article used in agricultural production or commercial fishing activities can be written off 100% in the first year.
Ships to be used solely as dive boats or for scuba diving/snorkelling tour operations also qualify for a 100% in the first year.
Initial Year Accelerated Depreciation
Initial year accelerated depreciation allows the capital cost of certain new assets to be written down at a faster rate then would otherwise be possible.
|Type of Plant||Rate in addition to normal depreciation|
|New Plant (other than resident property with a cost exceeding K100000) with a life exceeding five years used in Papua New Guinea in manufacturing, construction, transport, storage, communication or agriculture production.||20%|
|Modification of plant for the purpose of conserving fuel input.||20%|
|Expenditure on converting oil-fired plant to non-oil fired plant||30%|
|Expenditure on acquiring new non oil-fired plant.||30%|
New oil fired, plant is excluded from the accelerated depreciation provisions, except for new ships and aircraft.
Export Sales Exemption
This incentive allows 100% of the net income derived from export sales of a wide variety of goods for three years to be treated as exempt income. (The list is specified in the Income Tax Act.) Between yearâ€™s four and seven, any export income which is in excess of the average of the prior years can be treated as exempt.
Rural Development Incentive
This scheme was designed to allow income tax exemption on the net income of new businesses set up in specifically designated under developed areas that are not dependent on the exploitation of nature resources. It provides for exemption to businesses in a rural development industry for up to 10 years after the first year of commencement of business. Losses arising from the newly exempt activities are deductible against taxable income from other activities.
Double Deduction for Export Market Development Costs
The Scheme applies to expenditure on export market development for goods manufactured in Papua New Guinea. These expenditures qualify for double deduction, provided the tax saving in less than 75% of the cost of the expenditure: i.e. the Government is in effect subsidising up to 75% of the cost of this form of expenditure.
The types of expenditure which qualify include overseas publicity and advertising, market research, tender preparation, samples, trade fair expense, overseas sales and office expenses.
Double Deduction for Staff Training Costs
Employers can claim a double deduction for the salary and wages paid to registered apprentices and employees attending full time professional training courses at a Government training institute or a prescribed place of tertiary education.
Double Deduction for Overseas Tourism Promotion
The tour operators can claim double deduction for promoting their services in overseas markets with effect from 1 January 2006. The expenditures which will qualify for double deduction will be publicity and advertisements in any media outside PNG, market research, participation in trade fairs, public relations work connected with export, overseas sales and office expenses for promotion of tourism in PNG
Large scale new or substantially improved tourism facilities for the provision of temporary accommodation in PNG and the taxpayer’s income is solely from this operation is liable to income tax at the concessional rate of 20%. This rate only applies for 10 years from the time income is produced. The large scale tourism accommodation must have commenced constrcution between 1 January 2007 and 31 December 2011; invilve expenditure of US$7 million or more and provide 100 room or more fur such accommodation.
Double deduction of Exploration Expenditure for mining operations:
A double deduction is allowable on exploration expenditure pursuant to an exploration license issued under the Mining Act 1992 from which a mining development license was drawn on or after 1 January 2003.
Loss Carry Forward:
Loss incurred by a taxpayer in carrying out resource operations can be carried forward indefinitely.
Pooling of Exploration Expenditure:
Resource companies can make election to put all Exploration expenditure incurred outside of a resource project into a pool and claim 25% of the pooled expenditure as a deduction against income from the project. The deduction is limited to 25% of tax payable for mining companies and 10% of tax payable in the case of petroleum companies.
Incentive Rate for Petroleum Operations:
An incentive tax rate of 30% is applicable to petroleum operations arising out of a petroleum prospecting license (PPL) granted between 1 January 2003 and 31 December 2007 and from which a petroleum development license (PDL) was granted on or before 31 December 2017.
Additional Provision For Allowable Capital Expenditure
As of 01 January 2003, capital expenditure incurred by a company carrying on mining project will be pooled and the deduction allowed will be 25% of the value of the pool at the end of that year . This applies to projects in which a mining lease or special mining lease was issued on or after 01 January 2003