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PORT MORESBY, Papua New Guinea (Oct. 1, 2002 – Radio Australia)---Papua New Guinea's cabinet is meeting today to try to work out a response to the country's tax crisis.

The Cabinet is considering what to do after the Supreme Court ruled the 10-percent VAT invalid, putting a question mark over tax collections since 1999. The cabinet is believed to be considering urgent new legislation, which may need to be retrospective in nature.

Papua New Guinea's Business Council is urging the government to stick with the tax.

Mel Togolo, president of the Business Council of PNG, said otherwise major confusion, uncertainty and instability could result in the short-term. "If it continues a little longer, loss of revenue--significant loss of revenue--to the government."

He said the VAT is the major source of revenue for the PNG government. "Without that the government is unlikely to fulfill its financial and social commitments it has promised when it came into power."

He thinks the issue will likely be resolved in the long-term. "I think the implications are already being mooted, that there’s likely to be retrospective-type legislation to patch up, if you like, the loopholes that have been exposed by the Supreme Court ruling."

Togolo said the only other option for raising revenue is probably through domestic borrowing and overseas borrowing. "Of course the government will probably try and look at a variety of other taxes to do with corporate and input tax. But by then Papua New Guinea is going to be a most heavily taxed country in this hemisphere."

He said the private sector is already overtaxed. "If there’s more corporate tax you are likely to see businesses downsizing or closing or transferring assets--their businesses--to other countries. The end result is more diminished economic activity in PNG as well as destruction of most of the employment opportunities that are likely to be created in the private sector."

He said it will be difficult for the government to raise enough revenue to cover not only the deficit but additional projects, while at the same time not killing business and economic growth emanating from the private sector.

"So the government really has a tough job and I think it has to act very fast to try and resolve the constitutional issues and come back and ensure that VAT still operates as it was previously."

For additional reports from Radio Australia, go to PACIFIC ISLANDS REPORT News/Information Links: Radio/TV News/Radio Australia.

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