KUCHING: The government of Papua New Guinea (PNG), a key producer of tropical timber, will steeply raise log export taxes under its National Budget 2020.
As the new rates of export tax announced are up to 50 percent, this has drawn strong disapproval and criticisms from the timber players.
The PNG Forest Industries Association has voiced its extreme disappointment at the “harsh, unfair and discriminatory treatment of the forest industry in PNG.”
Said association executive officer Bob Tate: “This is the second time the government has breached the agreement reached with the industry to limit export tax to 28.5 percent of sales value.
“The new rates of tax announced of up to 50 percent are unsustainable and threaten the very survival of the forest industry in the country.
“Currently, the tax rates imposed on turnover, exports are 35 percent to government, landowners receive 13 percent and direct levies to the National Forest Service and CEPA are 4 percent. Making the total turnover taxes and levies equal to 52 percent of gross industry income. This is the highest rate of tax on any industry in PNG.”
Tate said as the new rates of tax raise the effective rate to 70 percent of gross turnover, there is insufficient income at this level for timber companies to cover production costs, wages, fuel, machine and logistical costs.
“What does the government propose for industry to cover the looming cash losses?” he asked in a press statement in a sharp response to the National Budget 2020 presented to the Parliament on Nov 28.
The association’s response was carried as the top story in latest issue of International Tropical Timber Organisation(ITTO) Tropical Timber Market Report (Dec 1-15 2019). Tate claimed that the authorities had not consulted with stakeholders in deciding to raise the timber export tax.
“It can only be assumed that the government is prepared to see and accept growing levels of rural unemployment, operational closures and a collapse in investment and rural development.
“Further, the aims of Vision 2050 which calls for a sustainable and profitable forest sector, appear to have been thrown out.”
Added Tate: “Of course, the impact of industry closure will be greatly felt by the rural communities where we operate. Currently some 160 million kinas (1 Kina=0.29 US dollar) annually are paid to our landowners. In most cases, this is the only source of income for the rural people.
“What income producing opportunities does the government propose for the people to replace this? And also, will the government take over and maintain the rural hospitals and supporting aid posts, the schools, the rural airstrips and shipping services currently operated by the industry?”
The association questioned the validity of the assumptions and justification of the new measures put forward by the government’s treasury officials, including a 10.5 percent increase in export prices of timber products in 2020.
“Even a brief review of current market conditions for tropical forest products would reveal a very fragile market, weakening prices and the huge impact the US-China trade war is having.
“China, our biggest export market, has seen a decline in import volumes of 12 percent this year to date. And last month, their government announced the closure of 270 sawmills in southern China.
“In the EU (European Union), a large end-user of tropical forest products, imports have fallen 52 percent over the last decade. Against this market reality, how does Treasury justify their price increase assumption?”
The association urged the government to seriously and urgently reconsider its move to further raise the “already oppressive” tax rates imposed on the forestry sector.
