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Wednesday, June 09, 2021

Papua New Guinea Plunder

 Papua New Guinea has vast natural resources, with gold, silver and copper mines dotted around the country, as well as large petroleum and liquefied natural gas reserves, but comparatively little of the wealth from these resources makes its way into government coffers or trickles down into communities.

 Australian mining companies have paid little or no corporate income tax in Papua New Guinea despite earning hundreds of millions of dollars from their PNG operations, benefiting from a complex taxation system that experts say leaves the country’s resources sector significantly “undertaxed”.

In the past decade Australian mining giants Newcrest and St Barbara, which have huge mines in PNG, have paid no corporate income tax some years, with the companies using generous tax rules and accounting practices to minimise their tax burdens.

In 2018, oil and mineral products made up almost 90% of the value of Papua New Guinea’s exports but less than 10% of government revenues. Oil and mineral products contributed an even smaller share of government revenues in previous years.

This is partly due to PNG’s taxation system, which uses an additional profits or “rent tax” method of taxation, which is complex, rather than a more straightforward flat royalty rate.

Australian companies own and operate many of the largest mines in Papua New Guinea, and 97% of PNG’s gold exports go to Australia, but the royalties, salary and other taxes levied in PNG can add up to just a fraction of either the revenue or operating profit.

St Barbara operates the Simberi mine, one of the largest gold mines in the world, in New Ireland province. The mine has generated AU$199m or more in revenues in each of the past four years but paid nothing in income taxes to the PNG government between 2012 and 30 June 2020. Between 1 July and 31 December 2020, St Barbara paid AU$7.7m gross in Papua New Guinea income tax. That mine booked gross profit greater than AU$75m in each of 202020192018 and 2017 financial years. In the 2016 financial year, St Barbara’s Simberi operations booked AU$170m in revenue and AU$50m in gross profit.

Newcrest Mining operates the Lihir goldmine on Aniolam Island in PNG. Newcrest did not pay corporate income tax in PNG in 2016 or 2017. In 2018 Newcrest booked more than US$1.2bn in revenue from the Lihir mine. Earnings before interest and taxes for Lihir were US$261m.

Diane Kraal, a senior lecturer at Monash University, was appointed by the PNG government to research petroleum and mining tax reform in the country in 2014. Kraal said PNG’s taxation system meant there was “no equity” for the Papua New Guinean people and had crippled the government’s ability to provide basic services to its people,

“Looking at the latest World Bank report in PNG, they confirm that the resource sector in PNG is undertaxed,” she said. “It’s undertaxed because of poor tax design and companies aren’t going to complain about that. In PNG they have persisted with a rent tax and it hasn’t worked because it’s too complex,” said Kraal. “These things can be manipulated..." The taxation system in PNG is a legacy from when PNG was an Australian colony and offered tax holidays and other exemptions to attract foreign investors, Kraal said. “There’s a presence of multinational companies in PNG, including Australian companies, and they’re hugely powerful,” she said. “When huge companies start lobbying, you’ve got to have a strong press, you’ve got to have a strong government … and they don’t have that in PNG at the moment… They’ve got Covid, they’ve got economic contraction and they’ve got political problems and that just gives power to vested interests.”

 Australian companies, she said were doing the “right thing” by shareholders in seeking to minimise their tax burden. “You can’t expect foreign companies to pay more tax than the legislation requires.”

Australian mining companies have paid little or no corporate income tax in PNG despite huge profits | Papua New Guinea | The Guardian

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