WORLD TRADE
ORGANIZATIONG/SCM/Q3/PNG/5
2 September 2002
(02-4658)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement
on Subsidies and Countervailing Measures
Replies to Questions Posed by AUSTRALIA1, the EUROPEAN COMMUNITIES2,
SWITZERLAND3 and the UNITED STATES4 Regarding the
Notification of PAPUA NEW GUINEA5
The following communication, dated 25 July 2002, has been received from the Internal
Revenue Commission, Papua New Guinea.
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QUESTIONS FROM AUSTRALIA
Australia submits the following as an initial set of questions/comments.  We reserve our
right to ask further questions on this request at a later stage.
Q1. Australia notes Papua New Guinea's earlier notification under the normal Article 27.4
procedures of its export subsidies granted under Section 45 of the Income Tax Act.  Could
Papua New Guinea clarify whether it is seeking an exemption under the normal Article 27.4
procedures as well as under the procedures outlined in G/SCM/39?
Reply
Papua New Guinea is seeking an exemption under Article 27.4 to request from the Committee
on Subsidies and Countervailing Measures an extension of the transition period for the provision of its
indirect subsidy.
Q2. Could Papua New Guinea provide further de tails in the required format on the export
subsidy programmes for which it is seeking an extension of the phase-out under the fast-track
procedures.
                                                     
1 G/SCM/Q3/PNG/2
2 G/SCM/Q3/PNG/3
3 G/SCM/Q3/PNG/1
4 G/SCM/Q3/PNG/4
5 G/SCM/N/74/PNG & Suppl.1, G/SCM/N/71/PNG.G/SCM/Q3/PNG/5
Page 2
Reply
Papua New Guinea is seeking an extension to the following indirect subsidy provided to
export oriented manufacturers through the Income Tax Act.
• Section 45 B of the Income Tax Act  : This section provides for exemption from income tax, of
profits resulting from new export sales.  The amount exempted is the total net (after expenses)income from export sales for the first three years after exports have started.  For another four
years thereafter, increases in net export income, measured over the rolling average of the
previous three years net export income, are exempted.  Given the company tax rate of 25 per
cent, the subsidy provided is 25 per cent of net profits derived from export sales, for the
periods and to the extent shown above.
Q3. Is the request in document G/SCM/N/74/PNG/Suppl.1 a separate export subsidy
provided by Papua New Guinea?
Reply
No.
Q4. Could Papua New Guinea explain and elaborate on the export subsidy provided to the
Ramu Nickel/Cobalt project and whether the expo rt subsidy is provided through Section 45 of
the Income Tax Act?
Reply
The subsidy provided in the Agreement betw een the Government of PNG and the Ramu/
Nickel project is that provided through Section 45 of the Income Tax Act explained earlier.
Q5. Could Papua New Guinea advise when and how it intends to phase out these
programmes?
Reply
The cost of the indirect subsidy is between US$25,000 and US$100,000 per annum.  Since
the cost of the indirect subsidy is minimal and PNG has a very low manufacturing base it is necessary
to provide such incentives to encourage export oriented manufacturing.  Therefore there are no plans
as yet to phase out the programme.
QUESTIONS FROM THE EUROPEAN COMMUNITIES
The European Communities pose the following questions without prejudice to the final
position on the request and reserve the right to  ask further questions in the course of the
consultations.
Q.1 Please indicate when the programme came into operation.
Reply
The indirect subsidies were introduced in 1984.G/SCM/Q3/PNG/5
Page 3
Q.2 Please indicate whether the programme provides for other forms of subsidies than
exemption of import duties and internal taxes (e.g. grants, provision of goods or services).
Reply
There is no exemption for import duties provided through a subsidy to any manufacturer in
PNG.  The indirect subsidy provided through the income tax system to promote export of goods
manufactured in PNG is as follows.
• Section 45 B of the Income Tax Act  : This section provides for exemption from income tax
(25 per cent), of profits resulting from new export sales.  The amount exempted is the total net(after expenses) income from export sales for the first three years after exports have started.
For another four years thereafter, increases in net export income, measured over the rollingaverage of the previous three years net export income, are exempted.
The only other subsidy available to export oriented manufactures is as follows:
• Section 72 C of the Income Tax Act :  This section provides a double deduction for expenditure
incurred in the development of export sales e.g.  Marketing and advertising costs etc.  With a
company tax rate of 25 per cent the double deduction subsidises export market development
costs by 25 per cent.
Q.3 Does the programmes provide for a condition to use domestic goods?  If yes, please
describe the relevant provision.
Reply
No.
Q.4 Please indicate the rate of import duty or internal tax exemption as of
1 September 2001.
Reply
The company tax rate in PNG is 25 per cent.
Q.5  Please describe changes to the programm e since 1 September 2001, if any. In particular,
indicate any changes to the rate of exemption or the coverage of the programmes e.g. in terms of
products, location etc.
Reply
There have been no changes to the subsidy since September 2001.
Q.6 Please indicate how many companies have benefited from the programme as of
1 September 2001.
Reply
The statistics are not available as yet for 2001.  However, since the cost of the subsidy has
varied from US$25,000 to US$100,000 per annum, it is evident that there are not a large number ofcompanies benefiting from the programme.G/SCM/Q3/PNG/5
Page 4
Q.7 Please elaborate on when and how Papa New Guinea intends to phase out the
programme.
Reply
The cost of the indirect subsidy is minimal and since PNG has a very low manufacturing base
it is necessary to provide such incentives to encourage export oriented manufacturing.  Therefore
there are no plans as yet to phase out the programme.
QUESTIONS FROM SWITZERLAND
Switzerland  submits the following commen ts and questions seeking clarification of
certain aspects of the request under review.  These comments and questions do not necessarily
prejudice its final position on these requests.
Papua New Guinea (G/SCM/N/74/PNG)
Papua New Guinea is urged to submit a full notification for the programme it is seeking
an extension of the transition periods following the notification format specified in document
G/SCM/6 (cf. item 3a of document G/SCM/39).
Reply
Papua New Guinea is seeking an extension to the following indirect subsidy provided to
export oriented manufacturers through the Income Tax Act.
• Section 45 B of the Income Tax Act  :  This section provides for exemption from income tax, of
profits resulting from new export sales.  The amount exempted is the total net (after expenses)income from export sales for the first three years after exports have started.  For another four
years thereafter, increases in net export income, measured over the rolling average of the
previous three years net export income, are exempted.  Given the company tax rate of 25 per
cent, the subsidy provided is 25 per cent of net profits derived from export sales, for theperiods and to the extent shown above.
The indirect subsidy is designed to boost the export of manufactured products.  The costs of
this indirect subsidy for the last three years (converted using exchange rate of US$ .2625) are outlined
in the following table:
Year Exemption of Export
Income
1998 87,933
1999 198,426
2000 18,895G/SCM/Q3/PNG/5
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QUESTIONS FROM THE UNITED STATES
The following questions are submitted with respect to the request for extension of the
transition period for export subsidies under Article 27.4 of the Agreement on Subsidies and
Countervailing Measures Agreement (ASCM).  These questions are preliminary in nature andare submitted without prejudice to our final po sition.  We reserve the right to ask further
questions.
Section 45 of the Income Tax ActQ1. Please provide additional details regarding  these programmes to determine whether the
programmes qualify for the special procedures of G/SCM/39, which states that the initialnotification shall follow the agreed format for subsidy notifications under SCM Article 25.
Reply
Papua New Guinea is seeking an extension to the following indirect subsidy provided to
export oriented manufacturers through the Income Tax Act.
• Section 45 B of the Income Tax Act  : This section provides for exemption from income tax, of
profits resulting from new export sales.  The amount exempted is the total net (after expenses)income from export sales for the first three years after exports have started.  For another four
years thereafter, increases in net export income, measured over the rolling average of theprevious three years net export income, are exempted.  Given the company tax rate of 25 per
cent, the subsidy provided is 25 per cent of net profits derived from export sales, for the
periods and to the extent shown above.
Q2. Please provide the normal income ta x rates companies would pay absent this
programme.
Reply
The company tax rate in Papua New Guinea is 25 per cent.
Q3. In light of the length of the benefits under this programme, how would Papua New
Guinea modify this programme so that subsidies do not extend beyond any extension period
provided.
Reply
Papua New Guinea has not made any plans for modifications to the programme at this stage.
Since PNG has a very low manufacturing base and is keen to attract export-oriented manufacturing, it
will be necessary to continue to provide incentiv es to attract foreign investment for some time.
Q4. Please explain whether any subsidies under this programme are contingent upon the use
of domestic goods.
Reply
There are no stipulations in the provisions of the indirect subsidy to use domestic goods.
Q5. Could Papua New Guinea please provide st atistical data on the number of companies
that benefit from each of these programmes, the industry sectors represented by theseG/SCM/Q3/PNG/5
Page 6
Reply
There are no statistics available on the type of companies/sectors that benefit from this
indirect subsidy, however the costs of the programmes for three years are outlined in the table below,which indicates a low usage of the subsidy.
The cost of the indirect subsidy for the last three years (converted using exchange rate of
US$ .2625) are outlined in the following table:
Year Exemption of Export
Income
1998 87,933
1999 198,426
2000 18,895
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