Abstract:

PNG’s income tax schedule has been changed 17 times since independence. These changes can be summarised as follows: the number of rates has been reduced by two-thirds; the maximum rate has fallen slightly; there is no trend in the minimum (tax-free) threshold after its introduction in 1987; there is a downward trend in the maximum threshold; there has been a steep increase in the minimum non-zero rate and a sharp compression in the non-zero tax rates; and the average tax rate has increased if the zero rate is excluded. Overall, the tax schedule is more progressive than at independence because of the introduction of the tax-free threshold. However, the tax schedule has become less progressive since 1987 because of the massive increase in the minimum non-zero income tax rate. PNG in fact has the highest minimum non-zero tax rate in the region at 30%. Other minimum non-zero rates in the region are in the range of 5-20%, and the global average for developing countries is around 15%. Despite the recommendations of the Tax Review Committee (2015), the minimum non-zero tax rate has continued to rise. Today, the tax-free threshold, adjusted for inflation, is the same as when it was introduced (1987), but the rate facing those just above the tax-free threshold has doubled, from 15% to 30%. To restore the progressivity of the income tax to its 1987 level, the minimum non-zero income tax rate should be reduced.