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Distribute the tax burden fairly among formal & informal sectors

Road tax centre in Kuala Lumpur
Vehicles approach a road tax centre in Kuala Lumpur, Malaysia


PORT MORESBY - The Papua New Guinea government has spent billions of kina on road infrastructure in recent years.

Most of the funds came from loans which will be repaid by taxpayers. Herein lies a big problem.

PNG has a small income tax base. Only 5% of the population is engaged in formal employment and they bear the tax burden.

The other 95% are in the informal sector and don’t pay any direct tax other than GST which is passed on to customers.

On average, a bus or taxi owner makes about K400 per day. In a fortnight, that’s more than K5,000. Bus and taxi owners receive benefit from public hospitals and schools – are they paying their fair share?

There are property owners who provide single rooms for rent at inflated prices and others in the informal sector who make a lot of tax-free income every day.

On the other hand, a public servant who earns K2,000 per fortnight pays about K600 in income tax.

This could be a reason why some public servants get involved in corrupt deals.

PNG suffers from poor tax compliance and enforcement. Some large companies enjoy tax holidays or avoid tax by declaring a loss. A lot of the local small to medium sized enterprises do not pay tax.

The government should be looking at strategies to expand our revenue base and distribute the tax burden more fairly among formal and informal sectors.

In Malaysia, I observed vehicles pulling up at a road tax centre to pay a toll before they’re allowed to use the road. PNG could adopt a similar approach to contribute to the cost of building and maintaining our roads.

For instance, if there are 30,000 vehicles in Port Moresby and the government imposes K2.50 road tax a day, that would raise about K75,000 a day and K27 million a year.

Taxis and PMV buses would have to pay more, say K10 a day. Government vehicles could be exempted.

The current tax system is such that business owners get richer while ordinary employees become poorer.

The government has to come up with effective strategies to expand the tax revenue base instead of ripping off the struggling people in formal employment.


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