Reforming fiscal regimes ‘vital’

THERE is an urgent need for reform of fiscal regimes in Papua New Guinea’s extractive sector, according to James Gore, founder of Micro-to-Small-to-Medium Enterprises Council (MSMEC).
Gore highlighted the negative impacts of state equity in resource projects on PNG and recommended urgent reforms to the fiscal regimes governing the extractive sector.
“It is imperative to address these issues to ensure sustainable and equitable development for our nation, State equity in resource projects undermines the role of the state as a regulator, compromising its ability to enforce regulations effectively and impartially,” Gore said.
“This conflict of interest can lead to regulatory lapses, weakening oversight mechanisms and jeopardising the interests of our people and environment.”
He added that the practice of granting tax and regulatory concessions as part of state equity deals results in minimised tax and non-tax revenues for the government, including causing foreign exchange supply constraints and depreciation of Kina.
Gore said these concessions also lead to reduced royalties being paid to customary landowners and sub-national governments, depriving them of their rightful share of project benefits.
“This not only exacerbates economic disparities but also undermines social cohesion and community well-being,” Gore said in a statement.
Moreover, according to Gore, the cash flow delay in receiving dividends from state equity investments poses a significant disadvantage.
“Unlike taxes and royalties that are payable monthly and promptly, dividends are subject to the Companies Act requirements, causing delays in revenue distribution and hindering the timely allocation of resources for essential public services and infrastructure development,” he said.
Gore said the State dividends could also be minimised through transfer pricing by the foreign operating partners in the resource projects.
“I strongly recommend a comprehensive reform of the fiscal regimes governing the extractive sector in the country,” Gore said.
“The reform should aim to enhance transparency, accountability, and revenue collection mechanisms while ensuring equitable benefit sharing for all stakeholders, including landowners and sub-national governments.”