Papua New Guinea’s tax laws are contained in the Income Tax Act 1959. The Act is administered by the Commissioner General of Internal Revenue, as head of the Internal Revenue Commission (IRC).

Fiscal Year

Although the nation’s budget is handed down every year during November, the Papua New Guinea tax year is a calendar year running from 1 January to 31 December. All income tax returns are based on that income period unless approval has been obtained from the IRC to adopt a substituted tax year. For salary or wage earners, who are not generally required to submit income tax returns, the tax period is a fortnight and tax is assessed by reference to the wage income derived in that fortnight. Each fortnightly withholding of tax is effectively deemed an income tax assessment.

Lodgment of Income Tax Returns

Returns of income should be lodged by 28 February in the year next following the tax is year, unless an extension of time is requested and granted.

Losses

Losses may be carried forward for up to twenty (20) years for normal businesses and indefinitely for primary industry businesses. They cannot be carried back.

Royalties

When royalties are paid by a Papua New Guinea resident to an overseas recipient they are subject to a withholding tax of:

10 per cent of the gross – where the royalty is paid to an arms length or unassociated person, or, at the option of the recipient, 48 per cent of net profits, or;

30 per cent of the gross – where the royalty is paid to an associated company or individual.

These rates may be modified by double tax treaties.

Bank Deposits

With effect from January 1, 1999, the Government has repealed the previous exemption from tax. In addition, a withholding tax of 15 per cent has been introduced on all payments of interest by financial institutions and companies.

This tax is an interim only. All interest must be declared in the annual tax returns but credit will be allowed for any interest withholding tax paid.

When interest is paid or credited by a Papua New Guinea resident person to an overseas recipient, the withholding tax at the rate of 15 per cent applies as well.

However, another rate may apply where the recipient is resident of a country that has Double Tax Agreement with Papua New Guinea.

The tax withheld on the interest paid or credited to the non-resident recipient is the final tax on this income. The non-resident recipient is not required to declare this income to the Internal Revenue Commission.