face withholding

PNG bankers face withholding tax dilemma

By Brian Tobia

Commercial bankers in Papua New Guinea are in a dilemma on how to implement a new govern ment tax measure to withhold or deduct 15 per cent per annum from gross interest paid to customers from deposits.

This was one of the revenue raising measures introduced by the government of prime minister Bill Skate and his deputy lairo Lasaro in the 1999 budget.

Under the measure, commercial banks were required to hold back 15 per cent of all the interests paid to their clients from deposits (savings accounts or Interest Bearing Deposits) and transfer it to the government consolidated revenue fund.

But deputy opposition leader Chris Haiveta said at a press conference after the budget was passed last year that this was going to discourage small citizens wanting to save money in banks or to get better interest on their deposits.

Haiveta has warned that commercial banks would lose many of their clients.

Bankers were concerned about the implementation of the measure.

All the different banks have their own computer system and there was no mecha nism in place. Banks were also waiting for advice from the Internal Revenue Commission.

This was highlighted in a letter from the Commercial Bankers’ Association (PNG) to the IRC in December regarding the new measure.

Association chairman Noel Smith expressed fears that the banking industry’s

ability to write and implement necessary computer programmes to cope with the government’s needs was affected by com puter systems upgrades, computer conver sions and systems testing for Y2K compli ance.

Smith said the computer systems for each bank were unique and there would be a varying capacity to cope with imposing the new tax measure.

He said the banking industry was aware that there would be severe penalties for non-compliance but they were still waiting for instructions from the IRC on how to implement the measure.

“...it appears that the

banking industry was

being directed to be the

vehicle to collect taxes

on behalf of the IRC”

Smith said: “Because it appears that the banking industry was being directed to be the vehicle to collect taxes on behalf of the IRC”. The banking industry wants the gov ernment’s advice on: - timing of implementation - how the tax was to be collected and remitted - number of cheques (one or more) cov ering the total tax collected per year on a monthly basis - and computer generated details like names, rates and amounts and to which accounts would these monies be credited to. Given the short period of time, the banks would be in no position to imple ment the tax measure.

Haiveta said: “Who’s interest is the

government looking after... they said it was the grass roots budget but they are no longer interested in the people who they are meant to serve.

“This is incredible and the govern ment’s credibility should be seriously questioned,” said the former finance min ister, who has also served some time as deputy to prime minister Skate.

Under the measure,

commercial banks were

required to hold back 15

per cent of all the interest

paid to their clients from

deposits (savings accounts

or Interest Bearing

Deposits) and transfer it to

the government

consolidated revenue fund

Haiveta said the tax measure of deduct ing 15 per cent a year from gross interest paid to clients (both residents and non-res idents) is only applicable to commercial banks. This means that the Westpac Banking Corporation, Australian & New Zealand Banking Group (ANZ), the Papua New Guinea Banking Corporation, the Bank of South Pacific and the Bank of Hawaii will be affected. This however, excludes the Central Bank - Bank of Papua New Guinea (BPNG).

He alleged that this may be plot by the government to discourage people from saving their money in commercial banks “so that they can invest in government treasury bills in the central bank to build up the government consolidated revenue”.

Haiveta claimed that the government was always looking at ways to build up its revenue base.

He said the tax measure, which was supposed to be implemented last month, would indirectly create havoc for the bankers and deny the rights of the small people to save their earnings.

He said people would now resort to keeping their money at home, fearing that the government would take away a portion of it that was rightly theirs.

Meanwhile, reliable sources from with in the BPNG confirmed that there was more demand for the government treasury bills than ever before. ■