Sir Nagora Bogan on the 2017 Budget and the Tax Review Committee

The then Chairman of the PNG Taxation Review Committee Sir Nagora Bogan has released a statement today as a private citizen and professional finance advisor to clarify some misunderstanding.
Firstly, he is pleased that the National Government has pronounced that it will undertake consequential amendments to correct a gross mistake made in imposition of the punitive tax on housing.
He said it is common sense that the timing is not right considering the current depressed state of the economy.
Many people, and especially workers in urban cities who shoulder the most burden of personal income tax, are feeling the impact as they cannot stretch the income they make on a fortnightly basis.
The cost of living has gone up and prices of basic consumer items have increased - in some cases threefold.
Many businesses are also feeling the pinch and have over the past two-to-three years under gone massive cost cutting including laying off employees and curtailing their cost and investment.
On tax reform, he said it is a matter of trade-off and a delicate balance and must be approached sensibly and responsibly.
 It must be holistic and not sporadic or ad hoc.
All ramifications and anticipated impact must be considered.
The biggest considerations are the prevailing state of the economy, the budgetary and revenue implications, implications of PNG as an attractive and competitive destination and what is technically considered as the political economy of tax.
This is the reason the Tax Review recommendations were presented as a holistic package to be carefully coordinated and staged over 5 – 10 years.
 In fact, the actual recommendations to the Government for the 2017 budget are cited word for word below in Volume.1 of the report.
1. Foreshadow economic stimulus package for current, medium and long-term maximum effect. Commence process by establishing and legitimizing an Economic Development Board and a Revenue Administration Board.
2. Announce  NO NEW TAXES. To ease socio-economic hardship as a result of declining commodities price and downturn in global economy, post-LNG construction, impact of El Nino and combined effects of some or all of the above.
3. Recognise election year – NO NEW TAX budget and IMPLANT PILLARS for economic growth and diversification.
4. 2017 Budget framed as fiscal stimulus measure to optimise revenue collection by improving revenue administration, correction of anomalies, adjustments for CPI, stringent controls and curbing of expenditure and options for debt financing and monetary policy.
5. Commence tax reform of extractive sector to make sector more transparent.
It must be stressed that the Committee made recommendations to the Government after extensive stake holder consultation, technical analysis, robust economic modeling and diligent consideration of what is in the best interest of the country presently and in the medium and long term.
 All these recommendations are contained in two volumes of reports handed to the Government in October, 2015 and are publicly available.
These are just recommendations and ultimately, it is the prerogative of the Government of the day whether to accept or not to accept.
On the 2017 budget, Sir Nagora said some of the Tax Review’s recommendations were selectively implemented such as extractive sector reforms and excise.
His greatest reservation and concern is whether the estimation of the 2017 tax revenue is rigorous and thorough.
He is of the professional view that many companies will either report losses, or lower taxable income and, in many instances, many have either liquidated or closed shop.
The days of surplus cash and economic buoyancy are gone.
This will have adverse bearing on corporate taxes.
In addition, he estimates that over 30,000 jobs have been lost and this will have serious implications on personal income tax.
Simply stated, the spending power of consumers has also diminished substantially and this will manifest also in lower GST receipts.
Ultimately, if the estimations stack up, then we will be fine in 2017 but if not we will see a likelihood of severe squeeze on cash flow with adverse implication on the 2017 budget.

Authorised and released by Sir Nagora Bogan, KBE
 December 6, 2016.