Karen McEntee, Director, KPMG PNG discusses the increasing focus by authorities in PNG on automatic penalties for the late lodgement of statutory compliance returns.
Recent years have seen the Papua New Guinean (PNG) Investment Promotion Authority (IPA) and the Internal Revenue Commission (IRC) step up their enforcement procedures against defaulting companies. Historically companies paid taxes and/or lodged returns late without penalties or other consequences.
However the IPA’s new system now imposes automatic penalties for the late lodgement of statutory compliance returns. More concerning is that it has published a list of ‘defaulting companies’ on its website, being companies with outstanding annual returns, and was threatening to start striking off these companies if they fail to bring their returns up to date. These strike offs were due to commence in late 2017 but due to system issues have been postponed.
Meanwhile the IRC’s new system now imposes automatic penalties for the late payment of tax. Poor compliance can be extremely costly with statutory penalties for late payment of salary or wages tax and goods and services tax (GST) running at 20 percent flat tax and 10 percent flat tax respectively plus 20 percent interest per annum. The IRC is also using other enforcement methods more frequently such as garnishee notices on bank accounts and director penalty notices (making directors personally liable for unpaid company GST or salary or wages tax).
The recent Budget also saw the insertion of legislation permitting removal of the ‘corporate veil’ to allow the IRC seek repayment of tax debts from shareholders and/or associated companies.
In addition, detection risks are increasing. Last year saw the IRC working with PNG Immigration to detect salary or wages tax non-compliance by data matching individuals entering PNG on sponsored visas against their own records. We would expect to see an increase in audit activity in this and other areas going forward.
PNG statutory compliance and tax compliance should not be neglected and should now be a priority for companies doing any business in PNG.