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Investors will pay no income or sales taxes

By Jonathan Tannos PORT MORESBY, Papua New Guinea (PNG Post-Courier, March 5, 2010) - INVESTORS in the giant liquid natural gas (LNG) project in Papua New Guinea’s highlands region will be exempted from paying income taxes.

They will also not be paying general sales tax (GST).

And the Independent Public Business Corporation (IPBC) has been granted wide ranging borrowing and financing powers to enter into agreements with financiers worldwide relating to the LNG project.

This follows yesterday’s passage of amendments to the IPBC Act 2002, Income Tax Act 1959, and the Goods and Services Tax Act 2003 by the Parliament.

The amendment clearly gives the project’s borrowing powers to IPBC for purposes of the LNG project on behalf of the State, but subject to final approval by the National Executive Council (NEC).

State Enterprises Minister Arthur Somare introduced the amendments in a quick move by the Government to rush through the changes to meet a three-week deadline for the drawdown of the first US$14 billion for the project.

He said this was also in compliance with the financial pre-requisites by project financiers and participants who insisted on explicit provisions under the three legislations.

He said the amendments empowered IPBC as borrower, guarantor and acquirer of financial or related capacities.

He said with these powers, IPBC will be able to meet its strict three-month time limit for sourcing and guaranteeing funding for the State’s participation.

But on corporate tax, Mr Somare said the State had "guarded zealously" the 30 per cent rate which will take effect from 2018.

Mr Somare brushed aside protests from the Opposition about losing billions of kina in income and GST, saying the earnings from 2014 would outweigh losses.

[PIR editor’s note: The Post-Courier reported opposition concerns about revenue loss seperately, as follows: BILLIONS will be lost to the country with yesterday’s passage by the Government of general sales tax (GST) and income tax for LNG project investors.

"While little Papua New Guineans buy rice and tin fish, they are paying GST.

"They (investors) should be treated like everybody else."

This was the reaction from Opposition Leader Sir Mekere Morauta, in Parliament when commenting on the tax exemptions introduced by State Enterprises Minister Arthur Somare to the Income Tax Act 1959 and the Goods and Services Tax Act 2003.

He described the effects of the new law as dangerous and badly exposed the country.

He said other investors in the industry like InterOil could ask for the same exemptions.

Sir Mekere further described the amendments as "public policy being influenced by wealthy backers."

He said project participants will not pay the required 15 per cent withholding tax, which they get to keep, adding "this is very expensive and we are exposing ourselves – this is now law.

"Why should we give our powers and money away," Sir Mekere quiried.

On an amendment giving more financial powers to the Independent Business Corporation (IPBC), Sir Mekere said this was totally "unnecessary" because Finance already accommodated that responsibility since independence.

He said the State had borrowed in the past to fund Ok Tedi, Lihir, Porgera and other projects and asking why the power to do this was now being vested in one Minister alone.

He said this virtually took away the National Executive Council’s powers, adding that dealing with project financing should be done by Cabinet.

Later at a news conference all Opposition Members decried the concessions as a sell out of the nation’s wealth.

New Ireland Governor Sir Julius Chan said concessions given for past projects were different compared with what the Government was now giving away. ]

Somare said concessions were not a new thing for the State, citing the world class Ok Tedi, Lihir, Porgera and Bougainville given by previous governments, some of which he said had not paid dividends yet.

He said the project financiers required explicit language to be included in the taxation acts, sufficient enough to give investor confidence.

He said the project had four major buyers, adding that there would be intermediary transfers to China, Japan and Taiwan from first shipment necessary to accommodate sales and marketing by participants in the official markets.

Final passages of the bills were taken without any amendments.

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