Income Tax Act Rewrite Tax Alerts

Analysis

Income Tax Act Rewrite Tax Alerts

Papua New Guinea

These are a series of special alerts from Deloitte Papua New Guinea to provide you with updates on specific sections of the draft new Papua New Guinea Income Tax legislation.

Topic 1 - Foreign Contractors - A new regime

This is the first of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

The draft rewrite of the Income Tax Act contains many important implications for non-resident contractors, and for those that engage non-resident contractors. Essentially, the foreign contractor withholding tax (FCWT) regime has been removed.This has been replaced as follows:

  • A “non-resident tax” is imposed on non-residents deriving PNG sourced income including, amongst other things, technical fees and royalties.
  • Foreign contractors with no permanent establishment in PNG will be taxed through a final withholding tax:

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Foreign Contractors - A new regime

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Topic 2 - Treatment of Depreciable Assets

This is the second of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

The draft rewrite of the Income Tax Act contains many important implications to consider for taxpayers. In this article we summarise the implications for the calculation of depreciation on fixed assets.

Depreciable assets are classified into 5 classes. The rate of depreciation on an individual asset is based on the straight-line method, calculated on a daily basis.

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Treatment of Depreciable Assets

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Topic 3 - Proposed Changes to Withholding Taxes

This is the third of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

The draft rewrite of the Income Tax Act contains many important implications to consider for taxpayers. In this article we summarise the implication for withholding taxes. The changes for Foreign Contractor Withholding Tax (FCWT) and Salaries and Wages Tax are the subject of separate alerts and therefore not repeated here.

Resident Withholding Taxes

Interest

Interest withholding tax still applies (at 15%) where an interest payment is made to an individual. However, the first K200 for a tax year of interest derived by a resident individual from a financial institution is exempt from taxes. Note the withholding tax no longer applies to interest paid to a corporate nor a trust. We suspect that the exemptions for trusts may not be intended. The withholding tax for individuals will remain creditable against their final tax liability, as determined based on the return of income filed. 

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Proposed Changes to Withholding Taxes

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Topic 4 - Taxation of Employment Income

This is the fourth of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite. 

The draft rewrite of the Income Tax Act contains many important implications to consider for taxpayers. In this article we summarise the implications for salary and wages withholding tax on employment income.

Employment and Salary and Wages

In the new Act, Salary and Wages Tax is now referred to as a tax on Employment Income. However, the definition of what constitutes employment income remains broadly the same as per the old Act, with some specific extensions referred to below.

The term employment is also defined but interestingly refers to an individual engaged “to perform services under the direction and control of another person”. This control requirement results in a more restrictive scope than the old Act’s definition of employment.

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Taxation of Employment Income

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Topic 5 - Taxation of Trusts

This is the fifth of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite. 

The draft rewrite of the Income Tax Act contains many important implications for taxpayers. In this article we summarise the implication for Trusts and Trust beneficiaries.

Principles for the Taxation of Trust income

The new rules seek to formalise “flow through” rules for trusts. Where a beneficiary is entitled to income, the beneficiary becomes taxable on that income at their marginal tax rate and not the trustee. Expenses incurred by the trustee in respect of that income are treated as incurred by the beneficiary.

It would appear that losses incurred by a trust could pass through to the beneficiary where they are entitled to the assessable income. For these purposes the word entitled is defined to mean “a vested and indefeasible interest.” An amount also retains its character and geographic source in the hands of the beneficiary, and is treated as derived or incurred by the beneficiary at the time it was derived or incurred by the trustee.

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Taxation of Trusts

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Topic 6 - Taxation of Individuals

This is the sixth of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

The draft rewrite of the Income Tax Act contains many important implications to consider for taxpayers. In this article we summarise the implication for individuals. The changes for Salaries and Wages Tax and Trusts are the subject of previous alerts and therefore not repeated here.

Tax Residence

The definition of tax residence for an individual has been changed.

The proposed definition is an individual who:

a. resides in PNG at any time during the year;

b. has his or her domicile in PNG during the year unless the individual has a permanent home outside PNG for the year;

c. is physically present in PNG for a period of, or periods amounting in aggregate to, 183 days in any 12-month period that commences or ends during the year; or

d. is citizen of PNG who is an employee of the Government posted

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Taxation of Individuals

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Topic 7 - International Tax Changes

This is the seventh of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

The draft rewrite of the Income Tax Act (referred to as the new Act) contains many important implications to consider for taxpayers, including cross-border arrangements. In this article we summarise the following International Tax implications:

  • Foreign Tax Credits
  • Indirect Foreign Tax Credits
  • Foreign losses
  • Concept of Permanent Establishment
  • Transfer Pricing
  • Anti-treaty shopping rules
  • Use of Tax Havens
  • Thin Capitalisation
  • Capital Gains Tax; and
  • Foreign currency exchange gain or loss.

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International Tax Changes

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Topic 8 - Allowable Deductions Changes

This is the eighth of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

The draft rewrite of the Income Tax Act (ITA) contains many important implications to consider for taxpayers. In this article we summarise the implication for allowable, deemed deductions and non-allowable deductions.

Allowable Deductions

  • Incurred Expenditure/ Loss
  • Trading Stock
  • Bad Debts
  • Charitable Donations
  • Scientific Research
  • Fixed Assets/ Depreciation/ Finance Leases
  • Profit Making Schemes/ Ventures or Concerns
  • Industry Specific Rules
  • Withholding Payments.

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Allowable Deductions Changes

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Topic 9 - Assessable Income

This is the ninth of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

The draft rewrite of the Income Tax Act (referred to as the new Act) contains many important implications to consider for taxpayers, including changes to what constitutes assessable income. In this article, we summarise how the new Act broadens the definition of assessable income.

  • Assessable Income
  • Employment Income
  • Property Income & Business Income
  • Exempt Income
  • Statutory Income
  • Outcomes.

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Assessable Income

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Topic 10 – Capital Gains Tax

This is the tenth of our series of Special Alerts summarising the major proposed changes under the Income Tax Act rewrite.

Capital Gains Tax

The draft rewrite of the Income Tax Act (ITA) contains many

important implications to consider for taxpayers. In this article we summarise the proposed new Capital Gains Tax rules.

  • Capital Gains Tax
  • Capital Gains Tax (CGT)
    • Taxable Asset
    • Disposal
    • Cost
    • Consideration
    • Reorganisations
    • Administration of CGT: Filing and payment obligation
  • Next Steps

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Capital Gains Tax

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