To promote the development of new
industries outside of the minerals sector, the Papua New Guinea Government
offers a number of attractive investment incentives. It is also possible
in Papua New Guinea to negotiate other incentives with the Government for
a specific investment which could not otherwise proceed without certain
conditions being met. Such investments, however, should be commercially
viable and in the interests of the people of Papua New Guinea.
Most of incentives currently available
target companies in the form of exemptions from company income tax, or
deferment of income tax liabilities. There are, however, some incentives
administered by the Internal Revenue Commission (IRC), which are not
related to company income tax. They include a wage subsidy provision,
which is a straight subsidy rather than a tax incentive. A summary of the
incentives currently available in Papua New Guinea follow.
(1) Export Income
The export income incentive is available
for firms producing new manufactured products and for firms producing
certain other specified goods.
The Commissioner-General for Internal
Revenue is responsible for declaring a product to be a new manufactured
product and also for the issuance of a certificate to a company which
intends to produce a new manufactured product. A company which
manufactures a product which is subject to either tariff protection or
quota protection without import parity pricing may not apply for a New
Product Manufacturing Certificate.
Under the incentive, profits made from
the export sale of qualifying goods are exempt from company income tax for
the first three years of export and for the following four years, the
profits on any increase in export sales over the average for the first
three years are also exempt.
Goods which qualify for exemption
Activated carbon, electrical appliances,
motor vehicles, artefacts, essential oils/oleoresins, paint, beverages
ready for consumption, fabricated steel, paper products, fibreglass
products, plastic products, biscuits, fishing nets, processed and canned
meat products, flexible packaging materials, smoked fish, processed
ginger, canned fruit and vegetables, flour, refined petroleum, foam
products, rubber products, cement and concrete products, mouldings,
plywood and laminated products, ceramics, chopsticks, glass products, ship
and boat building and repairing products, cigarettes, hand tools, clothing
and manufactured textiles, industrial and medical gases, soaps, treated
and processed crocodile skins, confectionary, jewellery, dairy products,
livestock feeds, wood pulp, dry cell batteries, matches and wooden
(2) Export Market Development
The market development cost exemption
gives a deduction of income from taxable income equal to twice the amount
of any expenditure on developing an export market (therefore it is a
The incentive is available for the
promotion of sales of goods manufactured totally in Papua New Guinea, or
where the Papua New Guinea labour cost component exceeds 10 per cent of
the sale price of the product. The double deduction is not absorbed by any
exempt export sales income (see Export Income above).
It is not available for the sale of
unprocessed primary commodities or for the marketing of services, so the
tourism industry does not benefit from this incentive.
The types of expenditure to qualify
include overseas publicity and advertising, market research, tender
preparation, samples, trade fair expenses, overseas sales office expenses
and certain travel costs.
(1) Pioneer Industries Scheme
The scheme provides a five year tax
holiday for pioneer, or new, industries associated with the development of
manufacturing-related activities, mainly downstream processing of Papua
New Guinea’s vast wealth of natural resources, in the country.
A pioneer industry refers to any
industry producing a product or a service not yet established or in
operation in Papua New Guinea or which manufactures goods solely for
export. Pioneer status is granted to any industry, other than primary
production or the primary processing of timber, or mining or quarrying. A
product of any such industry is called a "pioneer product" and a
service provided by any such industry is called a "pioneer
(2) Wage Subsidy
The wage subsidy promotes other
objectives in addition to the pure development of new industries. The wage
subsidy, by subsidising wages, promotes employment. However, the incentive
is available only to those firms which possess a new manufactured products
A firm producing a manufactured product
never before manufactured in Papua New Guinea or a product which is
manufactured but where import substitution is incomplete may apply for a
new products manufacturing certificate from the Commissioner-General for
This certificate enables the firm to
gain both the wage subsidy and the export income exemption subject to the
fulfilment of certain other criteria. To be eligible for the wage subsidy,
a firm must not receive quota protection without import parity pricing or
tariff protection such that the tariff on the final goods they produce
exceeds the weighted average tariff on their imported inputs by more than
15%. The aim of these requirements is to prevent the establishment of
inefficient industries which survive due to a combination of a high level
of subsidy and protection.
Wage subsidy payments last for five
years from the commencement of operations. For each full-time citizen
employee, a subsidy is paid which is a proportion of the minimum wage
relevant to that area. In the first year, the subsidy is equal to 40% of
the prevailing minimum wage. This declines to 30%, 20%, 15% and 10% in
(1) Initial Year Accelerated
The initial year accelerated
depreciation allows the capital cost of certain new assets, converting
existing oil-fired plant to non oil-fired plant, or improving the
efficiency of fuel-using plant, to be written down at a faster rate than
would otherwise be possible.
(2) Flexible Depreciation for
Agriculture and Fishing
As with the accelerated depreciation
provisions above, the flexible depreciation provisions allow the capital
assets to be written down at a faster rate than would otherwise be
possible. In the case of the flexible depreciation for agriculture and
fisheries, expenditure on new plant or articles used in agricultural
production or commercial fishing activities can be written off 100 per
cent in the first year. Boats or ships exceeding seven metres in length
are specifically excluded, together with ancillary equipment fitted to
(3) Industrial Plant Depreciation
Industrial plant not previously used in
Papua New Guinea is eligible for increased depreciation of up to 100 per
cent 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 a life
exceeding five years and be used by the taxpayer or any other person (for
example a lessee), in a manufacturing process. Expenditure on building
housing for such plant, or for storing raw materials or finished products,
(1) Rural Development
The rural development incentive aims to
spread development to the less-developed areas of the nation. Any new
business activity started since 1 January, 1988, in a designated rural
development area can gain a 10-year exemption from corporate income tax,
provided it is engaged in one of the following industries:
Businesses involved in the exploitation
of non-renewable resources (mainly mining and petroleum companies) are
specifically excluded from the exemption. Losses arising from those exempt
activities are deductible against taxable income from other activities.
(2) Rabaul Incentive
The Government has introduced a tax
holiday for businesses in Rabaul. From 1 January 1996 until 31 December
2000, businesses operating in Rabaul will be able to enjoy a five year tax
holiday. The tax holiday is aimed at restoring the town following the
volcano eruptions in 1994.
(3) Primary Production Investment
Development expenditure by companies on
land for primary production is deductible by the shareholders of those
companies, if the company transfers the deduction to them. (Primary
production development expenditure is defined to include the cost of
assets used for agricultural production.)
The incentive is different from other
incentives in that it allows the deduction by shareholders against their
personal income tax liabilities. The amount surrendered to each
shareholder is in proportion to the respective amounts of their paid up
capital, (paid on or after 1 January 1987). The total deduction available
to a shareholder may not exceed the total amount paid on their shares.
Shareholders may waive their entitlement if they wish.
The rationale for this incentive is that
some of the agricultural sector is not recording taxable profits so that a
deduction against company income tax would be an irrelevance. Outright
deductions are allowed for certain capital expenditure including clearing
or preparing or conserving land for agriculture, the eradication of pests,
labourers’ accommodation and for the conservation and conveyance of
water. Also, an initial accelerated depreciation deduction is allowed for
new agricultural plant with a life exceeding five years.
Losses incurred in carrying on a primary
production business can be carried forward indefinitely - they are not
restricted to the seven year limit that applies generally to company tax
(4) Staff Training Deductions
The double deduction for staff training
allows a double deduction against company income tax for the payment of
salary and wages to:
The tax saving from these deductions is
limited to 75 per cent of actual expenditure incurred.
(5) Staff Training Levy
All businesses whose annual payroll
exceeds K100,000 are subject to a two per cent training levy calculated on
the taxable salary and wages, including benefits, of all personnel. The
levy is assessed on an annual basis. The amount of the levy payable is
reduced by qualifying training expenses incurred in the training of
citizen employees. Qualifying training expenses are very widely defined.
(6) Solar Heating
This incentive promotes the use of
natural resources instead of fossil fuels to provide energy sources. In
Papua New Guinea, solar energy is extensively used especially for the
heating of domestic water supplies. Expenditure on the acquisition and
installation of solar heating plant for use in deriving income is
allowable as an outright deduction.
(7) Exemption of Certain Interest
Interest income received by persons and
corporations, including non-resident companies and individuals, from
deposits lodged with licensed financial institutions within Papua New
Guinea is exempt from income tax.
(8) Import Duty Drawback
Duty drawback is a rebate paid to
exporting manufacturers, when they export goods, equal to the amount of
duty already paid on the raw materials. It is offered so that
locally-manufactured goods can compete effectively in overseas markets.
Requests for the consideration of duty
drawback must include a detailed description of the manufacturing process
involved, including the nature and volume of inputs used, accompanied by
unit cost data based on import/export documents and commercial invoices.
(9) Assistance for Project Start-Up
Papua New Guinea offers other investment
incentives such as the Feasibility Study Grant Scheme and start-up loans
for Papua New Guinea entrepreneurs - which is of particular interest to
foreign investors who wish to enter into joint ventures with Papua New
Guinea companies. Investors interested in obtaining further information
about these forms of assistance are encouraged to contact the Investment
Promotion Authority for further information.
(10) Market Access Privileges
Papua New Guinea has preferential access
to a number of overseas markets. Products of Papua New Guinea origin are
allowed duty-free access to Australia, New Zealand and the European
Community under the PNG - Australia Trade & Commercial Relations
Agreement (PATCRA) and South Pacific Regional Trade & Economic
Cooperation Agreement (SPARTECA) and the Lome Convention respectively.
Local products also have preferential access to numerous other developed
countries including Japan and the United States of America under the GSP
Further, Papua New Guinea qualifies as
an underdeveloped country entitled to the benefits of the US General
System of Preferences and enjoys similar privileges in Japan and Canada.
Further information about Papua New Guinea’s market access privileges
should be directed, in the first instance, to the Investment Promotion
(11) Tariff Exemptions or Reductions
Proposals for the consideration of any
exemption or reduction in duty are examined on the merit of each case
depending upon the overall benefit to the country and revenue implications
within the cash-flow estimate by the Government. Such matters are handled
by the Internal Revenue Commission, within the Department of Finance, in
consultation with other administrative departments when considered
To assist the IRC and the Department in
its decision, any organisation or investor seeking any duty concessions
should provide all the cost data with supportive evidence covering broad
aspects such as quantum of investment, nature of project, types of
materials, machinery, equipment, annual importation and corresponding
value at c.i.f. level whether the manufacturing unit is exclusively export
orientated by utilising national resources and to what extent
locally-procured materials will be utilised.
(12) Imports of Specialised Capital
The import of certain specialised
capital equipment is exempt from duty. Such equipment must not be readily
available in Papua New Guinea and can be imported only on a temporary
basis for a specific purpose and a specific time. The importers must
satisfy the Commissioner-General of Internal Revenue that the equipment
will be used on an approved project and a security must be lodged for the
period of temporary importation.
The importer must undertake to re-export
the equipment at the end of the specified activity. This exemption is
expected to be particularly welcome for the mining and petroleum
industries, since equipment that they require for exploration is included.
Also eligible for duty exemption are
imports of capital equipment which will be used in the establishment of
new industries or the expansion of existing industries, provided that
approval for importation has been given by the Commissioner General and
that the equipment is not available in Papua New Guinea. It applies to
manufacturing industry only.
(13) Tax-Free Bank Deposit Interest
All interest paid by registered
financial institutions in Papua New Guinea is exempt from tax.
When interest is paid by a Papua New
Guinea resident company to an overseas recipient it is generally free of
tax but may, in some circumstances, be subject to a withholding tax (45%
of the gross amount).