WORLD TRADE
ORGANIZATIONG/SCM/N/74/PNG1
18 June 2001
(01-3006)
Committee on Subsidies
and Countervailing MeasuresOriginal:  English
SUBSIDIES
Requests Pursuant to Article 27.4 of the Agreement
on Subsidies and Countervailing Measures
PAPUA NEW GUINEA
The following communication, dated 27 April 2001, has been received from the Department
of Trade and Industry, Papua New Guinea.
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The Government of Papua New Guinea wishes to advise the Committee of the following
subsidies.  The Government grants export subsidies under Section 45 of the Income Tax Act, which
allows 100 per cent of the income derived from export sales of a wide variety of goods for three years
to be treated as exempt income.  After this period any export income which is in excess of the average
of the prior years can be treated as exempt, up to and including the seventh year.
Under Part VIII of the Agreement Papua New Guinea does not appear to have special
treatment as we are not classified as a "least developed country", which we believe means that we
have until 1 January 2003 to eliminate export subsidies.  Given the importance of this subsidy to
foreign investors, the Government of Papua New Gu inea wishes to apply for an extension of this
transition period under Article 27.4, until such time as we improve our export competitiveness, which
would allow Papua New Guinea to become fully compliant.
It would be very much appreciated if an official of the Secretariat could contact the relevant
officer directly at the following address:
Secretary Commissioner General
Department of Trade and Indus try Internal Revenue Commission
P.O. Box 375 P.O. Box 777
WAIGANI, NCD PORT MORESBY, NCD
Papua New Guinea Papua New Guinea
                                                     
1 This document cancels and replaces documen ts G/SCM/N/73/PNG, dated 28 May 2001 and
G/SCM/N/73/PNG/Add.1, dated 29 May 2001, which were incorrectly symbolled.G/SCM/N/74/PNG
Page 2
Attached herewith please find a copy of the legislation related to issues of export subsidies in
Papua New Guinea, in respect of which an extension of the transition period has been requested
pursuant to Article 27.4 of the Agreement on Subsidies and Countervailing Measures.
DIVISION 1A.—EXPORT INCENTIVES
SECTION 45A. INTERPRETATION
45A(1) [Definitions]  In this Division, unless the contrary intention appears—
"allowable deductions"  means all deductions that would be allowable under this Act if no
part of the income of the taxpayer was exempted from tax by the operation of this Division;
"average export sales"  means an amount equal to the export sales of the base period divided
by three;
"base period"  means the three years of income immediately preceding the year of income in
respect of which an exemption under this Division is claimed;
"consideration receivable" , in relation to a sale or other disposal of export goods, means—
(a) in the case of a sale or disposal other than one to which Paragraph (b) applies—the
amount or value of the consideration for the sale or disposal; or
(b) where the sale or disposal is part of or is connected with a transaction in which any
other assets are sold or disposed of—such part of the amount or value of the
consideration as the Commissioner General is satisfied is attributable to the sale ordisposal of the export goods,
reduced by any amounts paid or payable (otherwise than as an agent) by the person selling or
disposing of the goods, by way of freight for carriage of the goods outside Papua New Guinea
or by way of insurance or other outgoings in relation to the goods attributable to events or
contingencies occurring or arising, or services performed, after the placing of the goods upon
a ship or aircraft for export from Papua New Guinea;
"declared year of income"  means the year in respect of which the taxpayer became entitled
to the exemption offered under Section 45B;
"export goods"  means goods exported from Papua New Guinea by the taxpayer, being
goods—
(a) which were manufactured by the taxpayer in Papua New Guinea;  and(b) which were sold or disposed of by the taxpayer; and(c) of which the taxpayer was the owner at the time of the sale or disposal; and(d) which are not non-qualifying goods; and
(e) which are qualifying goods;
"export sales"  means the consideration  received by the taxpayer in relation to the sale or
other disposal of export goods;G/SCM/N/74/PNG
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"new manufactured product"  has the meaning ascribed to it in Section 1 of the Industrial
Development (Wage Subsidy) Act  1984;
"non-qualifying goods" , in relation to export goods means—
(a) goods exported by way of gift; and(b) goods taken or sent out of Papua New Guinea with the intention that they will at some
later time be returned to Papua New Guinea otherwise than for repair or replacement;
(c) goods which are sold by retail to persons departing from Papua New Guinea; and(d) such other goods as are prescribed as non-qualifying goods for the purposes of this
Division; and
(e) goods (except new manufactured products) not prescribed as qualifying goods;"qualifying goods" , in relation to export goods, means such goods, or goods included in such
classes of goods, as are prescribed for the purposes of this Division, or new manufactured
products.
Sec. 45A(2)
(2) [Purchase or sale of business]  For the purposes of calculating the average export sales of a
taxpayer, where during a year of income the taxpayer acquired, by purchase or otherwise, an existing
business, the export sales of the taxpayer for the base period shall be deemed to be an amount equal tothe sum of the export sales derived by the taxpayer during the base period and the export sales derived
by each other person who owned that business during that period.
SEC. 45B. Exemption related to export sales
(1) [First export sale after 1 September 1984]  Subject to Subsection (3) and Section 45C,
where a taxpayer first derives income from export sales after 1 September 1984—
(a) 100 per cent of the amount of the export sales made prior to the last day of the third
year of income following the year in which export sales commenced; and
(b) 100 per cent of the amount by which the export sales for each subsequent year
exceeds the average export sales,
shall be exempt income.
Sec. 45B(2)
(2) [Export sales before 1 September 1984]  Subject to Subsection (3) and Section 45C, where
a taxpayer derives income from export sales before 1 September 1984—
(a) in any year of income which commenced prior to 1 January 1982 or any approved
substituted accounting period in lieu thereof, 50 per cent of the amount by which theexport sales for the year of income exceeds the average export sales; or
(b) in any year of income which commenced on or after 1 January 1982, but prior to
1 January 1984, or any approved substituted accounting period in lieu thereof, 100 perG/SCM/N/74/PNG
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cent of the amount by which the export sales for the year of income exceeds the
average export sales; or
(c) in any year of income which commenced on or after 1 January 1984, or any approved
substituted accounting period in lieu thereof—
(i) 100 per cent of the amount by which the export sales made prior to 1
September 1984 exceed 75 per cent of the average export sales; and
(ii) 100 per cent of the amount derived from export sales made after 1 September
1984 but prior to the end of the third year of income following the date of the
commencement of export sales;  and
(iii) 100 per cent of the amount by which the export sales for each subsequent
year exceeds the average export sales,
shall be exempt income.
Sec. 45B(3)
(3) [Period of exemption]  The provisions of Subsections (1) and (2) shall apply to income
derived from export sales during each of the seve n years commencing with the declared year of
income.
SEC. 45C Exemption in respect of restricted period
Where, during a year of income, a taxpayer acquired, by purchase or otherwise, or disposed
of, an existing business, the exempt income of the taxpayer under Section 45B in relation to that
business shall be no greater than that which would have accrued to the previous owner had the
business not been disposed of.
SEC. 45D. Calculation where goods qualify for part period only
(1) [Non-qualifying goods]  Where, during a year of income, goods in respect of which this
Division would otherwise apply became non-qualifying goods, the calculation of the export sales for
the base period shall be adjusted by excluding those goods, for the purposes of calculating any
increase in export sales in accordance with this Division.
Sec. 45D(2)
(2) [Qualifying goods]  Where, during a year of income, goods that were not qualifying goods
became qualifying goods, calculation of export sales for the base period shall be adjusted by including
those goods, for the purpose of calculating any increase in export sales in accordance with this
Division.
SEC. 45E. Arrangements to increase exemptions
Notwithstanding anything in this Division, wh ere the Commissioner General is of the opinion
that arrangements have been made between a taxpaye r and any other person with a view to the affairs
of the taxpayer being so conducted to have the effect of obtaining for the taxpayer an improper
advantage under this Division that he would not, but for that arrangement, have otherwise obtained,
the amount of exempt income calculated under this Division in respect of that taxpayer shall notG/SCM/N/74/PNG
Page 5
exceed the amount that, in the opinion of the Commi ssioner General, would have been calculated if
that arrangement had not been made.
SEC. 45F. Modification of tax information
(1) [Inaccurate information]  Subject to Subsection (2), where, after considering the
information furnished or otherwise available to him as to the amount of export sales of a taxpayer for
a year of income or for the base period, the Commissioner General is not satisfied as to the accuracy
of that information, he is not required to determine the appropriate amount or the amount of income of
the taxpayer that, but for this section, would have been exempt income under this Division.
Sec. 45F(2)
(2) [Deemed export sales]  Where, in a case where Subsection (1) would otherwise apply, the
Commissioner General is satisfied that the amount of export sales of the taxpayer for the year of
income or the base period does not exceed a particular amount, but he is not satisfied that it is less
than that particular amount, that particular amount shall be deemed to be the amount of the relevantexport sales for the purpose of determining the exempt income of the taxpayer under this Division.
Sec. 45F(3)
(3) [Abnormal trading conditions]  Where, within the time within which he is required to
furnish a return of his income for a year of inco me, or within such further time as the Commissioner
General permits, a taxpayer makes application in writing to the Commissioner General for a reduction
of the amount that would otherwise be the amount of his export sales for the base period for the
purpose of determining exempt income under this Division, on the grounds that, by reasons of
abnormal trading conditions or other extraordinary circumstances during the base period the amountof export sales for the base period is greater than it would otherwise have been and that he is, by
reason of that fact, under an unfair disadvantage, the Commissioner General may, for the purposes of
this Division, make such adjustments in respect of the amount of those export sales as he thinks fit.
SEC. 45G. Deductions in calculating exemption
(1) [Deductions from exempt income]  Subject to Subsection (2), where, in a year of income a
taxpayer derives any income which is exempt under this Division, the amount to be excluded from his
allowable deductions for the year of income shall be the amount of the allowable deductions
(excluding any amount allowable under Section 72C) relating to that exempt income or, where the
Commissioner General is satisfied that the amount cannot accurately be determined, an amount which
bears to that total allowable deduction relating to the business from which the exempt income arose
the same ratio as the exempt income under this Division bears to the total income arising from
carrying on that business during the year of income.
(2) [Not to exceed exempt income]  The amount to be excluded under Subsection (1) from a
taxpayer's allowable deductions shall not exceed the amount of exempt income referred to in thatsubsection.
SEC. 45H. Gaining improper advantages, etc.
(1) [Offence]  A taxpayer, or where the taxpayer is a company, the company, or a public officer
or a director, servant or agent of the company, who or which, by any act, default or neglect, or by any
fraud or contrivance whatever, gains or attempts to gain an improper advantage or an exemption to
which he or it or his company would not lawfully be entitled under this Division, is guilty of an
offence.G/SCM/N/74/PNG
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Penalty:  A fine of not less than K 500.00 and not exceeding K 10,000.00.
Sec. 45H(2)
(2) [Tax-based penalty]  In addition to any fine imposed under Subsection (1), the Court before
which the action is brought may order the person or company, as the case may be, to pay to the
Commissioner General a sum not exceeding double the amount of tax that, in the opinion of the court,
was avoided or attempted to be avoided.
(3) [Counselling or assisting]  Without derogating the provisions of any other law, where the
court i s satisfied that the commission of an offence against this section was counselled or assisted inany way by any other person (whether in a professional or other capacity) the court may order that
person to be liable, or jointly and severally liable with any other person, for the payment of the
additional tax under Subsection (2).
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