WORLD TRADE  
ORGANIZATION   
G/SCM/N/226/PNG 
25 October 2011 
 (11-5362) 
Committee on Subsidies and 
Countervailing Measures Original:   English 
 
  
SUBSIDIES 
 
Continuation of Extension under SCM Artic le 27.4 of the Transition Period for 
the Elimination of Export Subsidies Pursuant to the Procedures Contained 
in the General Council Decision in Document WT/L/691 
 
PAPUA NEW GUINEA 
 
 
 The following notification, dated 25 October 201 1, is being circulated at the request of the 
Delegation of Papua New Guinea.   
 
_______________ 
 
 
1. Title of the subsidy progra mme, if relevant, or brief descr iption or identification of the 
subsidy 
 
 Section 45B under Division 1A – Export Incentives of the Income Tax Act of 
Papua New Guinea. 
 2. Period covered by the notification 
  The period covered is calendar years 2010-2011.   
 
3. Policy objective and/or purpose 
  Section 45B of the Income Tax Act is an e xport incentive provided to the companies by the 
Government, which aims to attract export-oriented  manufacturing and foreign investment through the 
provision of export incentives.  It provides for exemption from income tax, of profits resulting from new export sales.  The amount exempted is th e total net income from export sales for the 
first three years after exports have started.  For a nother four years thereafter, increases in net export 
income, measured over the rolling average of th e previous three years net export income, are 
exempted.  Given the company tax rate of 30
1 per cent, the subsidy provided is 30 per cent of net 
profits derived from export sales, for the periods and to the extent shown above. 
 4. Background and authority 
 
Section 45B is under "Division 1A – Export incentiv es" of the Income Tax Act.  The indirect 
subsidy was introduced in 1984 and is administ ered by the Internal Revenue Commission, the 
government agency responsible for taxation and customs matters in Papua New Guinea. 
                                                      
 1 The company tax rate was increased from 25 per cent to 30 per cent in the 2003 National Budget and 
has remained at 30 per cent since then.   G/SCM/N/226/PNG 
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   Section 45B (2), part of the Income Tax Ac t and mentioned in document G/SCM/N/74/PNG, 
is no longer valid.  5. Form 
 
 Income tax exemption for up to 100 per cent of net income derived from export sales of a 
variety of goods (mainly mining and petroleum produc ts) for three years.  After this period, any 
export income which is in excess of the average of the prior years can be treated as exempt income, 
up to and including the seventh year.  
6. To whom and how the subsidy is provided (whe ther to producers, to exporters, or others;  
through what mechanism;  whether a fixed or fluctuating amount per unit;  if the latter, how 
determined 
 
 This subsidy, provided through the income tax system, is to promote exports of goods 
manufactured in Papua New Guinea.  In 2000, two companies benefited from the export incentive and 
the revenue forgone was K965, 368.00.  In 2006, fi ve companies benefited and the revenue forgone 
was K21, 796,614.00.  In 2008, only one comp any benefited and the revenue forgone was 
K1, 337,349.00.  One company benefited from the programme in 2009 and th e revenue forgone was 
K10, 552.00.  
7. Amount/subsidy per unit, or in cases where this is  not possible, the total amount or the annual 
amount budgeted for that subsidy (indicating, if possible, the average subsidy per unit in the 
previous year).  Where provision of per unit subs idy information (for the year covered by the 
notification, for the previous year, or both) is not possible, a full explanation. 
 
 The standard company tax in Papua New Guin ea is 30 per cent and the subsidy provided is 
30 per cent of net profits derived from export sales.  The cost of this subsidy is between US$25,000 
and US$100,000 per annum.  There are no statistics av ailable to more precisely update the costs of 
this indirect subsidy to the Government for the years 2010-2011.  8. Duration of the subsidy and/or any ot her time limits to it, including date of 
inception/commencement 
 
 PNG is expecting that this request for exte nsion will be granted fo r 2012 and the subsequent 
years as per the requirements of the fast-track proce dures.  Similarly, PNG is aware of the obligation 
to eliminate the subsidy in 2015, including the final two years referred to in Article 27.4, and intends 
to undertake, at an appropriate time, a deta iled study of possible options in this respect. 
 9. Statistical data permitting an assessment of th e trade effects of the subsidy.  The specific 
nature and scope of such statis tics is left to the judgement of the notifying Member.  To the 
extent possible, relevant and/or determinable, however, it is desirable that such information 
include statistics of production, consumption,  imports and exports of the subsidized 
product(s) or sector(s): 
 
 (a) for the three most recent year s for which statistics are available; 
 (b) for a previous representative year, whic h, where possible and meaningful, should be 
the latest year preceding the introduction of the subsidy or preceding the last major 
change in the subsidy 
 The statistical data for this period is not available as most companies targeted by the 
Government for this subsidy did not apply fo r assistance under this programme to export.   G/SCM/N/226/PNG 
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  One project, the Ramu Nickel/Cobalt, which the G overnment provided this incentive of indirect 
subsidy to mine the resources and through this tax exemption on e xport income, assist/develop that 
region of the country, remains under developm ent and is not yet in full production.  
Papua New Guinea wants to reassure WTO Members that  at this stage there is no evidence of trade 
effects as a result of this subsidy. G/SCM/N/226/PNG 
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  PROPOSED PLAN OF ACTION 
GENERAL COUNCIL DECISION WT/L/691 
 
  The Government of Papua New Guinea subm its the following communication in accordance 
with its requirements contained in Paragraph 1(f) of the General Council Decision WT/L/691.  
 
(a) Description of programme 
 
 The subsidy programme, in question is curre ntly being provided under Section 45B of the 
Income Tax Act.  The subsidy is provided to co mpanies by the Government with the objective of 
attracting export oriented manufacturing and fore ign investment into the country through the 
provision of export incentives.  The incentive is provided by way of a 100 per cent tax exemption on 
income tax, of profits resulting from export sales for three years.  After this period, any export income 
which is in excess of the average of the prior three years can be treated as exempt income, up to and 
including the seventh year in which it becomes sel f terminating.  The provision of the incentive is 
non-discriminatory and is provided to both foreign a nd national companies that make requests to the 
competent authority responsible for administering the subsidy.   
(b) Description of the domestic procedures ne cessary to eliminate the subsidy programme 
  A legal amendment of the Income Tax Act will be required to eliminate the subsidy 
programme in question by the prescribed date of 31 December 2015.  Because the Income Tax Act is 
a legislative act passed by Parliament, any amendm ents to the act will also require Parliamentary 
endorsement.   
 Since the Income Tax Act is governed by the Minister for Finance and Treasury, it will be the 
Minister for Treasury and Finance who must table the draft bill before Parliament.  The Minister for Finance and Treasury must first seek approval of the National Executive Council (NEC) before he/she 
is able to present the proposed b ill in Parliament.  Parliament will then consider and determine 
whether to enact the proposed bill through a simple majority vote of 50 per cent.  The whole process 
taking into account the administrative and policy cons iderations should take about twelve months to 
complete. 
 
(c) Description of actions that have been or are in the process of being undertaken 
 
 The Government of Papua New Guinea is maki ng every effort within its capacity to ensure 
that its tax policy operates within the legal framewo rk of the SCM Agreement.  The PNG Government 
has established a National WTO Sub-Committee on Subs idies, which is chaired by the Director 
General of the Trade Division within the Depart ment of Foreign Affairs and Trade.  The Sub-
Committee on Subsidies coordinates and deals with a ll matters related to the implementation of the 
SCM Agreement.  The Committee comprises of a ll stakeholders responsible for designing and 
administering the programme, including the beneficiaries in the private sector. 
 
 The Sub-Committee has informed the benefici aries through its regular meetings of the 
requirements in General Council Decision WT/L/691,  including the requirement to eliminate the 
subsidy programme by 31 December 2015.  Th e Sub-Committee will also be responsible for 
coordinating the necessary measures at the domestic level measures to ensure that no export subsidy 
exists within the definition of the SCM Agreem ent by or before the 31 December 2015.  The Sub-
Committee will also be responsible for preparing the draft bill and NEC submission to be tabled by 
the Minister of Treasury and Finance for consideration.    G/SCM/N/226/PNG 
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  (d) Description of future actions 
 
 The Government of Papua New Guinea through the National WTO Sub-Committee on Subsidies will intensify its efforts to ensure that  the necessary measures are undertaken at the national 
level to eliminate the subsidy programme by 31 D ecember 2015.  In this regard, the Sub-Committee 
will convene a meeting to initiate the internal processes required to eliminate the export subsidy 
programme, in accordance with the procedures explained in (b) above.   Finally, as per the 2011 National Budget, the PNG government is committed to undertake the 
gradual phasing out of the export subsidy scheme by end 2015 as stated so.  Chapter 6 (Taxation Measures) of the 2011 National Budget:  Volume l- 6.8 Areas of Policy Development in 2011. 
 
 The following represents areas of policy devel opment that will be considered for 2011, for 
which the government wishes to provide notice to industry or seek industry comment.  Industry and 
other interested groups were invited to lodge s ubmissions on these issues by 30 April 2011, as part of 
the regular process for making Pre- Budget submissions.  Export Subsidy Program:  PNG's Export Subsidy Program is scheduled to be abolished as of 
31 December 2015, regardless of the date of first export sales in order to be consistent with PNG's 
obligations under the WTO. 
  Other areas are:  Taxation of unit property trusts, Taxation refunds, Payment of mining and 
petroleum tax instalments and Highlands Highway Special Tax Credit.    
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