October 2006 V1

Internal Revenue Commission

A GUIDE TO
GOODS AND SERVICES TAX
 GOODS AND SERVICES TAX GUIDE

Table of Contents

1 - Introduction
2 How to use this Guide 31 - Financial Services
3 What is a Goods and Services Tax 32 - Medical Industry
4 Three Steps to Understanding 33 Timber
GST 34 Education
5 GST Registration 35 - Vehicles
6 Why you should Register 36 - Primary Producers
7 Requirements after you Register 37 Charities and Non Profit Bodies
8 Group Registration 38 - Donations
9 Cancellation of Registration 39 Sponsorship
10 GST Audits 40 Second Hand Goods
11 Offences and Penalties 41 Lay by Sales
12 GST Refunds 42 Private Use of Business Assets
13 Accounting Basis 43 Sale of Business Assets
14 Invoice Basis 44 Change of Use
15 Payments Basis 45 - Insurance
16 Tax Invoices 46 Insurance Companies
17 Credit Notes 47 Leases/rents
18 Debt Notes 48 Real Estate
19 - Agents 49 Bond Monies
20 Taxable Activity 50 Hire Purchase Agreements
21 - Zero-rated Supplies 51 Metal Refining
22- Sale of a Going Concern 52 Record keeping
23- Exported Goods 53- Tax Invoices
24- Duty Free Shops 54- Duplicate Tax Invoices
25 - Diplomatic Missions 55 -Supplies greater than K200
26 Imports 56 - Supplies of K200 or less
27 - Temporary Imports 57 - Supplies of K50 or less
28- Aid Projects 58 - How to complete your GST return
29 - Supply of Fine Metal 59 - Conclusion
30- Exempt supplies
 GOODS AND SERVICES TAX GUIDE

1) Introduction
The GST Guide is produced to inform businesses and organisations in simple terms how GST works.

This booklet is intended as a guide only and is not a legal document. While every endeavour has been
made to ensure the accuracy of the information in this guide, changes in legislation or judicial
interpretation may mean that it is not wholly correct.

Any queries should be directed to the Internal Revenue Commission (IRC) for advice. Specific
determination requests or requests for additional information should be forwarded to -

Internal Revenue Commission

GST Division
P.O. Box 777
Port Moresby

Ph 321-1209
Fax 321-2928

2) How to use this Guide

GST is quite simple and this guide is written to address as many of the GST issues that exist for all
businesses. A businessman may not need to know everything there is about GST, but only what
aspects of GST apply to his business. GST is quite straightforward and the Internal Revenue
Commission has advisers who will assist a business if they have GST questions or difficulties.

3) What is a Goods and Services Tax

A Goods and Services Tax or GST is a tax, which is imposed on the sale of goods and services in Papua
New Guinea. GST is imposed at a rate of 10% of the value of the goods and services sold.

4) Three Steps to Understanding GST

Step 1) A GST registered business (eg. a retailer) purchasing goods and services for the
business will pay the supplier of those goods GST of 10% (if the supplier is registered for GST).
The supplier will issue a Tax Invoice.

Step 2) The purchaser adds his mark-up (profit) to those goods. Because GST paid on the
purchase of goods can be claimed back as a credit, (whereas duties and sales taxes could not)
the selling price of a product is based on the GST exclusive price paid for that product.

Step 3) When the final selling price has been worked out, GST of 10% will be added to that
figure.

Businesses COLLECT GST and return that to the Government less the credit on the GST the
business was charged on purchasing its supplies. This is done using a monthly GST return.

GST is not like Income Tax or Salary and Wages tax where tax is calculated on earnings. GST
is a consumption tax that is ADDED to the selling price (including profit) of goods and services.
 GOODS AND SERVICES TAX GUIDE

A simple example is as follows.

GST you have collected from sales K,1000

Less GST you have paid to suppliers 750
You pay to IRC K 250

5) GST Registration

A business with an annual turnover is greater than, or is expected to be greater than K 100, 000 must
register for GST. Businesses with turnovers less than K 100, 000 per year can register for GST on a
voluntary basis. Registration forms are available from any IRC GST office.

6) Why you should Register

A registered business can take advantage of GST credits on the GST paid to their suppliers. The credits
are deducted from the GST collected from their customers (Sales) to reduce the amount of GST payable
to the IRC. Refer to the previous example.

Businesses with turnovers greater than K100, 000 (or will have) and do not register may be required to
pay the GST that should have been collected on the sales. If turnover (not net profit) is less than K100,
000 per year then registration is voluntary.

Unregistered businesses cannot charge GST.

7) Requirements after you Register

When a registration is approved, a GST registration number will be issued. This entitles the business to
charge and collect GST on sales. There is also a requirement to issue Tax Invoices. Refer to (16)-Tax
Invoices for more information. Every month a GST return is completed and received by the 21st of the
following month at the latest. For example, a Jan XX return is to be received no later than the 21
February XX.

8) Group Registration

Companies with branches in more than one province, or associated companies with a common and
majority shareholding, may register all branches as a group and submit one GST return for the whole
group.

A multi-province group is required to list the total sales and GST collected in those provinces in the GST
return. This enables the IRC to distribute to the Provinces the GST collected in those Provinces
according to the GST Distribution Act 2003. The form and method of calculation are on the GST return.

9) Cancellation of Registration

GST registration can be cancelled by writing to the Commissioner and providing an explanation as to
why the registration should be cancelled. On deregistration a business cannot charge GST or issue Tax
Invoices.

Cancellation will not occur if the business has outstanding GST returns. A cancellation of registration will
not free a business from any future audit actions or inquiries.
 GOODS AND SERVICES TAX GUIDE

Special provisions apply to assets retained by the business after a cancellation of registration. Refer to
(43) - Sale of Business Assets.

10) GST audits

The IRC conducts audits on businesses to ensure that they are complying with GST laws. Other taxes
will be checked prior to the audit and referred if necessary to the relevant sections. Prior to an audit;

We will advise a registered person that an audit will be undertaken.

The business is advised of the accounting records to be examined. Refer to Recordkeeping.
The time spent on an audit will depend on the cooperation of the company and the availability and
legibility of records. Lack of co-operation will not deter the IRC from raising an assessment.
A discrepancy between the records and the return will result in a reassessment. Penalties may apply.

11) Offences and Penalties

Registered persons/businesses who do not comply with the Goods and Services Tax Act may be subject
to fines up to K 50,000.

For example.
Not registering or not registering and charging GST.
Failing to file returns, keep records or suppling information.
Supplying false information on your GST returns.
Using GST money collected by you for other purposes.
Conspiring with anyone else to defraud the revenue or else to commit any offence against the Act.

12) GST Refunds

Businesses incurring expenditure that exceed the revenue generated during a month of trading will result
in a credit.

The IRC examines credits for accuracy, honesty and fraud. Tax Invoice/s, GST calculations, source
documents or a list of suppliers to verify the refund prior to the release and/or the reassessment of the
refund will be requested. .

13) Accounting Basis

GST may be accounted for in two ways. When a business registers, it will automatically go on the Invoice
(accruals) basis.

Businesses have an option to adopt the payment or cash basis providing certain conditions are met and
requested in writing. These conditions are;

The business has taxable sales not exceeding K500,000 per year; or,
After registration, the taxable sales are unlikely to exceed K500,000 per year.
The nature and conditions of the business may warrant a change from the Invoice (accrual) basis to
the payments (cash) basis.

14) Invoice Basis

Businesses required to account for GST on the accrual (invoice) basis will account for GST on sales
(output debits) on the issuing of a Tax Invoice or on receipt of income for that sale whichever occurs first.
GST in respect of expenses (input credits) are claimed on the receipt of a Tax Invoice whether the
expenses have been paid or not. Input credits cannot be claimed unless there is a Tax Invoice on file to
verify the claim.
 GOODS AND SERVICES TAX GUIDE

15) Payments Basis

Businesses returning on a payments (cash) basis will return GST on sales in the month in which payment
has been received.

Input credits are claimed when the payment has been made. Tax Invoices and receipts must be on file to
verify the claim. A cashbook or debtors ledger should be used by the business to record income received
and payments made.

16) Tax Invoices

Tax Invoices are the same as any other invoice a business issues but with the following requirements.
The words TAX INVOICE and the GST registration number are to be clearly visible on the invoice. An
invoice without these requirements is not a Tax Invoice and will not be acceptable for use as an input
credit.

The GST charged must be shown on the Tax Invoice or alternatively, the words This invoice includes
GST charged at 10% must be clearly written on the Tax Invoice. The person who receives your invoice
may want to claim GST as a credit and can only do so if the Tax Invoice meets the requirements.

These requirements apply to all Tax Invoices issued.

If a supply is less than K50, a Tax Invoice is not required and an input credit is allowable providing a
receipt issued by a registered business for that purchase is on file. The receipt must describe what
the purchase was. A receipt with just an amount printed in it is not acceptable.

Supplies in excess of K50 and less than K200 are to be supported with a Tax Invoice. The date,
suppliers name, address and GST number are to be shown with a description of the price and the
goods supplied.
Supplies greater than K200 are to have the above details and also show the name and address of
the buyer.

Unregistered persons cannot issue tax Invoices. Tax Invoices issued by non-registered persons are
illegal. This is a serious offence and action will be taken against offenders as well as requiring payment
of the GST charged to the IRC without the allowance of any input credits.

17) Credit Notes

Credit notes are raised when the price for a supply is reduced after a Tax Invoice was issued or goods
returned.

Credit notes must have the registration number of the business issuing the credit note and the Kina
amount of the credit note and the GST applicable.

18) Debit Notes

Debit notes are issued when the price is increased after a Tax Invoice was issued.

Debit notes, as above, require the trade name and registration number of the supplier including the
amount of the increase and the GST applicable.

19) Agents

An agent is a person or a business that buys or sells goods and services on behalf of someone else (the
principal). The principal is still the buyer or seller and not the agent.

If both the principal and agent are registered persons, the agent may issue a Tax Invoice on behalf of
the principal. The Tax Invoice is to be issued in the name of the agent and there is no requirement
 GOODS AND SERVICES TAX GUIDE

for the agent to include the principals name on the invoice. The principal cannot issue a Tax Invoice
for the same supply. Only the principal can claim GST for the sale or purchase.
Should the agent buy goods for the principal, the supply is deemed to be made to the principal and
not to the agent. However, an agent can ask the supplier for a Tax Invoice as though the supply had
been made to the agent.
In either case, only the principal can show in the return the GST output debits or input credits for the
sales or purchases made on his behalf by his agent.
The agent is to keep a record of the name, address and registration number of the principal in any
such transaction.

20) Taxable Activity

A taxable activity is the conducting of a business activity whether or not that activity results in a profit. It
involves the acquisition of and the provision of goods or services for a consideration, that is the purchase
or sale of goods or services for money or trade, for instance the trade of one good for another.

21) Zero-rated Supplies

Zero rated supplies are supplies taxed at zero percent. Zero rating differs from being exempt. Zero rating
is a taxable activity while the supply of exempt goods and services are not a taxable activities.

Registered persons making zero rated supplies do not add GST to their zero-rated sales and do not
return GST on zero rated income. Being a taxable supply, they may claim input credits for GST paid on
producing those supplies. Zero rated suppliers may find that they may be in a GST refund situation.

Zero rated supplies include:

- Exported goods;
- the sale of a going concern;
- duty free goods;
- goods not in Papua New Guinea at the time of supply (because GST only becomes payable on
import of those goods);
- temporary imports;
- the transport of passengers into and out of Papua New Guinea;
- certain export services;
- the first sale by a refiner of pure gold mineral ores ;
- aid projects.

This list is not conclusive. Further information on zero-rated supplies is available from your accounting
professional or the IRC GST Advisors.

22) Sale of a Going Concern

The sale of a going concern is the sale of a business that is sold lock, stock and barrel with the
business being operative and able to carry on as usual at the time of sale.

The sale of a going concern is zero rated only between registered people. Both parties must agree to
zero rating in writing for the sale to be zero-rated. There is no legal requirement for an operative business
to be zero-rated if the vendor does not want the sale to proceed as a zero rated sale. In this instance, the
sale is a taxable supply.

If part of a taxable activity is sold and that part is capable of separate and independent operation, that
sale may be zero-rated. If part of the business is sold and one or neither part is capable of separate and
independent operation then the sale will be subject to GST.
 GOODS AND SERVICES TAX GUIDE

Before a sale is executed, both parties should contact the IRC for advice. If the sale is executed and we
deem the sale taxable then a reassessment may result.

23) Exported Goods

Exports or goods intended for export are zero-rated. Zero-rating will occur if the goods are exported
within 28 days, unless unforeseeable circumstances delay the shipment of goods. Goods not exported
within the 28-day period will be charged with tax.

24) Duty Free Shops

Goods purchased for export by international travellers from duty free shops (at airports or ports) are zero-
rated.

Tourists purchasing goods from a retailer (outside of a bonded area) are entitled to zero rate their
purchases providing the retailer packs and dispatches those goods to a place outside of PNG.

25) Diplomatic Missions

Goods imported by diplomatic missions for use by the missions or imports by a diplomat for personal use
are exempted from GST. Goods purchased within Papua New Guinea for the use of missions and those
for diplomats and their families use are charged GST at the point of sale. Both missions and approved
diplomats are to register for GST to claim the input credits on purchases.

To qualify for an input tax credit, the credit will be subject to the same processes of verification that apply
to all registered people. The records are to be supplied to an officer of the Internal Revenue Commission
on request.

26) Imports

GST at the rate 10% is imposed on goods imported into Papua New Guinea. GST is established on the
CIF value Cost Insurance and Freight. GST is collected at the port of entry. The customs entry (Form
15) is a Tax Invoice for which an input credit deduction can be claimed.

27) Temporary Imports

Goods and services relating directly to items imported temporarily into Papua New Guinea for period of a
few days only, are zero rated for GST purposes and will not have any import duties applied. For example,
services supplied to international aircraft or ships.

Goods supplied in connection with temporary imports e.g., repairs and maintenance on an overseas ship,
the repair of an overseas container, re-stocking of provisions etc are zero-rated.

Temporary imports remaining in Papua New Guinea for a period longer than a few days, will have duties
and GST payable in the form of a bond. A bank cheque payable to PNG Customs will be held in trust. A
tax invoice (Customs F15) will not be issued immediately.

Should the temporary import leave Papua New Guinea within a 12-month period, the bond is returned to
 GOODS AND SERVICES TAX GUIDE

the importer.

Should the temporary import remain in the country for longer than 12 months it is deemed a permanent
import and the bond and GST will be forfeited. A Tax Invoice will then be issued by Customs for the
supply.

Anyone importing goods or services, as a temporary import must keep a copy of the Import Entry issued
by the Customs Department.

28) Aid Projects

Approved aid projects in Papua New Guinea are zero-rated. This provision means that GST paid on
supplies obtained in Papua New Guinea for an aid project will qualify for an input tax credit, while the
income received by a principle contractor will not be subject to GST on income received from the donor
agency. Exemption certificates are not issued.

Aid organisations, importing goods, will not pay GST to Customs. Subcontractors importing goods
specifically for an aid project may zero rate providing a letter detailing the project details and nature of
the goods imported, is sent to the IRC (who will advise Customs) and approval in writing is issued.

Zero- rating applies only to the aid provider or donor. A company appointed by the aid provider to
manage and fulfil the conditions of the contract is an agent to the donor agency and is commonly referred
to as the principle contractor.

Zero-rating provisions apply only to the principle contractor. Should the principle contractor use the
services of other companies and sub-contractors, those businesses are not zero-rated. Their services
are a taxable supply.

29) Supply of Fine Metal

The supply of unrefined ore or a metal by a miner for treatment and refining is zero-rated;
The first supply of refined (to fine metal standard) metal sold by a refiner to a dealer in fine metal is
zero-rated;
A refined metal sold by a dealer in fine metal to a manufacturer is exempt;
Manufactured fine metal sold by a manufacturer, for example gold jewellery sold by a jeweller to an
end user, is taxable;
Fine metal manufactured into goods for sale is a taxable supply other than fine metal ingots or fine
metal coins;
Refining fees are a taxable supply and GST will be charged.

Fine metal is defined as:

- gold with a fineness of not less than 99.5%
- silver with a fineness of not less than 99.9%
- platinum not less than 99%

30) Exempt Supplies

Exempt supplies are supplies (to the end user) where GST is neither added to the sale price of goods or
services nor can GST be claimed back on the GST paid on acquiring those goods. An exempt business
cannot register for GST.

Some exempt supplies include:

- financial services;
- doctors, hospitals, dentists;
- the supply of fine metal (not being the first supply);
 GOODS AND SERVICES TAX GUIDE

- PMV and taxi fares;

- school fees;
- market food.

Certain rules apply to businesses involved with taxable and exempt supplies.

Apportionments are required to separate GST paid on goods and services used in making taxable
supplies and exempt supplies.

An example would be rentals and electricity on premises used for pokies (an exempt supply) and a bar (a
taxable supply). A percentage of the area used for the bar and pokies is made and that taxable
percentage (the bar) when applied to the GST on inputs will result in the portion of the inputs credits
claimable.

31) Financial Services

The provisions dealing with the financial services sector are broad and complex. Detailing all the options
within this category is beyond the scope of this guide. Questions relating to this sector may be directed to
the IRC or your accountant for details.

32) Medical Industry

Supplies of medical and related services by hospitals, doctors, dentists, opticians, nurses or aid post
orderlies are exempted from GST. GST cannot be charged on services provided.

Supplies of prescription drugs and medical prostheses by a medical practitioner or prescription lenses
with or without frames by an optician are zero-rated.

33) Timber

The export of unprocessed and processed timber is zero-rated. Unprocessed woods are subject to GST
if sold within PNG.

34) Education

Educational institutions are exempt due to the GST inclusive funding provided by the Government. An
educational institution can claim GST paid only on the purchase of goods purchased specifically on items
directly relevant to a pupils education, such as textbooks, tuition, boarding services and writing
materials. GST cannot be claimed on repairs and maintenance to the school.

The school will not charge parents or children GST on the supply of those goods and services. They
must charge GST if they sell those goods to persons other than children attending the school or their
parents.

A school directly importing educational supplies will not pay duty (if any) or GST at the port of entry. An
importer, not being a registered educational institution will pay duties (if any) and GST. On the sale to an
educational institution, GST is charged and the institution may claim the GST back by completing a GST
return.

35) Vehicles

GST is charged on all vehicles sold by GST registered motor vehicle dealers. Registered MVDs
purchasing second hand motor vehicles or trade ins from unregistered persons can claim an imputed
one-eleventh of the value of the vehicle. Dealers purchasing vehicles from GST registered persons must
charge GST on that purchase and issue a tax invoice to the vendor.
 GOODS AND SERVICES TAX GUIDE

GST can be claimed only on commercial vehicles with the exception of dealers in motor vehicles or
vehicle rental operators.

Commercial vehicles are defined as trucks, utilitys or vans that carry 1 tonne or more or buses that carry
9 or more passengers. Vehicles outside these specifications are regarded as private vehicles even
though a vehicle may be used partly or totally for business. No GST on the purchase can be claimed.

Non-commercial vehicles used in the course of business can claim GST input credits on fuel, repairs and
maintenance, etc. All private usage of vehicles require an apportionment (private use adjustment)
between business and private use.

36) Primary Producers

Small holders and farmers with turnovers less than K100,00 per annum are permitted to increase their
prices to buyers by 1%.

The buyers then claim as an input tax credit the 1% paid to growers, providing the buyer issues a receipt
stating who the seller was and the amount paid for the produce plus the extra 1% paid.

37) Non-profit Bodies and Charities

Non-profit bodies or charities involved with community work may be granted zero-rated status. Zero-rated
status applies to local purchases and goods imported for use in the organisations charitable activity.
Goods imported for the organisations own use will attract GST at the port.

Charitable organisations conducting commercial activities must charge GST on the goods and services
sold. An organisation not registered for GST and involved in a commercial activity where the turnover is
greater than
K 100,000 per annum, must register.

Fund raising activities are exempt and not classified as commercial activities. Sales of donated goods are
exempt from GST unless the activity is deemed to be an ongoing activity and commercial in nature.

38) Donations

Donations are unconditional gifts. It is defined as a gift that will not recognise, promote, advertise or have
any benefit to the donor. The donor cannot claim an input tax credit on a donation. If the donor gets
recognition for the donation, then it is not an unconditional gift. Therefore, if the recipient is registered
then that donation will be subject to output tax.

Companys giving donations in the form of goods to charities or non-profit organisations cannot claim
GST on the donation but must return GST on the cost of those goods donated. This is required to offset
the GST claimed when those goods were purchased. Organisations receiving monetary donations are
not required to return GST on the receipt of the donation unless the donation is used or seen to promote
the donors interests. Publicly acknowledging an individual or company as a donor by way of mention is
acceptable. The donor must not gain or obtain any commercial or collateral benefits by the donation and
its public reference. Donations may be in the form of money or goods. Sponsorship is not a donation.

39) Sponsorship
Commercial sponsorship of an event in whole or in part is not a donation. Classified as a conditional gift,
sponsorship results in publicity and promotion for the sponsor, and is commercial in nature. Goods
donated to a sponsored event will not require the recipient to return GST on the value of those goods.
Donors of goods or services are deemed to have sold the goods and must declare the donation as a
sale. The receipt of money is taxable.

40) Second-hand Goods

 GOODS AND SERVICES TAX GUIDE

The supply of second-hand goods between GST registered people is a normal supply of goods between
two or more registered persons. GST is charged and the supply supported with a Tax Invoice. The
second-hand goods provisions do not apply.

GST registered persons buying second hand goods from unregistered persons for use in the business
can claim an imputed input credit of 1/11th of the amount paid.

Company purchasing second-hand goods and exporting them cannot claim a deemed input credit.

Livestock and primary products are not second hand goods.

To claim a deemed (imputed) input credit; the following requirements apply.

Payment for the supply must have been made regardless of whether the purchaser is registered
under the invoice (accruals) basis or a payments (cash) basis of accounting.
The vendors details - contact number, address, phone number and a description of the goods
purchased is to be retained as proof of purchase.
Second-hand goods purchased from an associated person will be valued at the open market value.

41) Lay-by Sales

Lay-by sales are determined by the time of supply rules. The goods remain the property of the vendor
until final payment is made. When payment for the goods has been made the title or ownership of those
goods pass to the purchaser.

Retailers will account for GST on the lay-by sale when the final payment has been made, resulting in the
ownership of the goods passing to the purchaser. This also allows the goods to be returned to stock
without a GST adjustment if the lay-by sale is cancelled.

Where a lay-by sale is cancelled and the vendor retains a portion of an amount paid by the purchaser
then that portion retained is subject to GST.

42) Private Use of Business Assets

Private usage of business assets are calculated as a percentage of the overall use. GST relating to
private use cannot be claimed as an input credit and instead the value is entered in line 16 of the GST
return.

43) Sale of Business Assets

The sale of business assets is a sale by the company and GST is returnable on the sale.

An asset purchased prior to the introduction of GST and subsequently sold, is still subject to GST
when sold.
Where a sale is to an associated body, GST charged on the sale is calculated at the lower of cost or
open market value.
Where assets are retained by the owner on cessation of the business (or deregistration) the assets
are deemed to be sold and GST must be declared on the open market of the assets.

44) Change of Use

Assets purchased for business use and subsequently used in full or in part for private or exempt use are
subject to an adjustment based on the private usage. A Line 16 adjustment is required.

45) Insurance

Insurance policies other than life insurance are subject to GST. Businesses making claims to an
 GOODS AND SERVICES TAX GUIDE

insurance company for compensation for loss or damage are required to return 1/11th of the insurance
moneys received as assessable income.

46) Insurance Companies

Insurance companys can claim 1/11th of any non life insurance money paid out on a policy. Should the
insurance company recover any money from a paid out policy then the insurance company has to return
1/11th of this as output tax.

47) Leases/Rents

Leases, residential and commercial rents are subject to GST on the proviso that the lessor is registered
for GST otherwise, no GST may be charged. The lessor is required to register for GST if total sales
(rents received and any other sales) are greater than or are likely to exceed K100, 000 per annum.

Lessees of business premises may claim back as an input credit the GST they pay on the lease.
Employers providing employee accommodation (an exempt supply) cannot claim input credits on
GST paid on costs associated with the provision of the accommodation.
An individual paying GST on a privately used dwelling cannot register for GST to claim the GST
back.

48) Real Estate

Land

There is no GST on the sale of land. It is an exempt supply.

Improvements

GST applies to the sale of improvements on land. Improvements refer to the improvements to land by
the placement of buildings or other structures. The value of improvements is the value of those
improvements at the time of valuation and not the difference in value between last sale and the present
sale.

Sales of Property

The valuation of property is at open market value. Valuations by the Land Transfer office are not
acceptable for valuation purposes.

A recent valuation by a registered valuer is required in all instances of the sale of property. Commercial
property sales require a minimum of two valuations by independent valuers. If the IRC doubts or
questions the valuation of a property, the IRC may request an additional valuation by a valuer of its own
choice, the cost of which will be borne by the vendor.

The valuation must separately show the value of the land and the value of the improvements.

General Rules of GST in Property Transactions.

A GST unregistered person selling a privately owned house or commercial building cannot add GST
to the sale price.
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A vendor, being a registered person, but selling a property used for his private purposes, cannot add
GST to the sale price.

A GST registered person purchasing a property from an unregistered person cannot be charged GST
on the purchase. If;
a) The registered purchaser is going to use the property in a taxable activity then the purchaser may
claim an imputed one-eleventh of the purchase price as a deemed input credit under the second-
hand goods provisions or;
b) If a registered person (as the purchaser) is not going to use the property in a taxable activity then
the purchase is deemed a private purchase. The purchase will not give rise to an imputed GST
input credit.

If the vendor being a registered person sells a property that-

a) is used in a taxable activity, or;
b) is not used in a taxable activity but that property forms part of the registered persons business
assets,
then GST must be charged on that sale.

If the vendor builds houses as a taxable activity -

a) then GST will apply to the sale of the houses unless the property is privately used by the builder.
b) if the builder builds a house for himself as a private residence and claims GST on the materials
and associated costs, the builder has purchased the house for himself and must return GST on
the lower of cost or open market value.
c) if the builder builds a house and takes up residence while keeping the house on the market (at
market value) and then sells the house at a later date, GST will apply to the sale.

If the vendor is registered and is a property developer then GST will apply to the sale unless the
property is private and does not form part of the developers taxable activity.

If the vendor is GST registered and the property forms a part or all of the vendors taxable activity
then GST will apply to the sale. However, note the section below on the sale of a going concern.

If a registered vendor sells a property on which GST is chargeable under the preceding rules to an
unregistered person, who will not use the property in a taxable activity, the vendor must charge GST
on the sale. The purchaser must absorb the cost of GST.

Sale of a Going Concern

A sale of a going concern is a zero-rated transaction only if sold between two GST registered persons, or
a person who will become registered immediately after transfer. Zero rating only applies where that
concern can be operated as an independent business immediately after the sale.

Zero-rating will apply if one of the following criteria is met-

a) if the property is a factory for example being sold with manufacturing equipment and capable of being
operated as an independent business; or
b) the property is a house which is tenanted at the time of sale; or
c) the property is a block of flats or a block of offices and at least 50% or more of the flats or offices are
occupied by tenants,
d) the property is a retail outlet and fully stocked at the time of sale.

Housing Schemes

An employee housing scheme or similar home owning scheme providing all or part of the employees
housing finance may not claim an input credit for the GST (if any) that applied to the purchase of the
houses. The housing scheme operators are acting as agents and financial service providers for the
purchaser.
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Real Estate Agents, Lawyers

Real Estate agents (and/or legal representatives) should be aware of the vendors GST status. An
agent or legal representative cannot assume GST applies on the sale of a property without the
vendors proof of the vendors GST status (GST number).

Either party may issue a Tax Invoice in support of the sale as agents of the registered person and
must include the vendors GST number on that invoice. A purchase and sale agreement is not a tax
invoice but may suffice if the vendors GST number, the words tax invoice and the amount of GST
charged are clearly stated on the agreement.

A realtor or lawyer representing the vendor who elects to return GST on the sale to the IRC
themselves, sufficient documentation must exist to allow the vendor to prove that the amount of GST
collected on the sale has been returned by the appointed returning agent.

Sale of Property Other issues

Services supplied in Papua New Guinea in relation to a property situated outside Papua New Guinea
are zero-rated.

If the property is in PNG, services supplied in relation to that property, will be subject to GST.

49) Bond Monies

Money paid as bond money is not subject to GST until all or part of that money is used. If the bond is
refunded in full, GST will not apply. If all or a part of the bond money is used, the amount deducted from
the bond will be treated as a GST inclusive amount. This deemed as income to the bondholder.

Persons who pay a bond cannot claim GST on the payment of the bond to the bondholder. If all or a part
of the bond is used then the payer of the bond can claim GST on the amount that has been used.

50) Hire purchase agreements

GST is payable as hire purchases payments are made. The following rules apply:

Interest and other financial charges are exempt from GST and GST is not payable in respect of the
portion of the monthly payment representing those amounts.
The supplier charges GST on the amount representing the principal cost of the asset purchased.

A hire purchase agreement will clearly show the principal amount borrowed, the monthly hire purchase
charge and/or the interest charged.

Leases are not hire purchase agreements. GST is payable on the full amount of a lease.

51) Metal Refining

A metal refiner purchasing alluvial gold from small and medium scale alluvial gold miners and refines
it into new fine metal will zero-rate the subsequent sale.
The sale of alluvial gold or the sale of any ore to a metal refiner will be zero-rated.
Metal ore imported for the purposes of refining and re-export, is a temporary import. Temporary
imports may be entered free of GST, on the importer giving a security or undertaking for payment of
the GST payable, should the supplies not be re-exported.
 GOODS AND SERVICES TAX GUIDE

A metal refiner who does not purchase the ore or the metal when refined will charge a toll fee to the
mining company for refining the ore. The toll fee is subject to GST.

52) Record Keeping

PNG law states that all businesses must keep and maintain accurate records and full accessibility of
those records for checking purposes. The Internal Revenue Commission (IRC) is an independent
government department appointed to examine accounting/business records on behalf of the Government
of PNG. Records must be held in Papua New Guinea, written in English and must be kept for a period of
seven years.

Records may include:

- cashbook's;
- computer ledgers/audit trails;
- till tapes;
- receipts;
- Tax Invoices;
- credit and debit notes;
- bank statements;
- debtors/creditors lists.

The record keeping requirements of a business will depend on the type of business it is. Some
businesses do not generate much paperwork, others do.

The IRC requires access to and examination of Tax Invoices, proof of payment and proof of earnings.
Without evidence of earnings and expenditure businesses with poor recordkeeping are not only
committing an offence, but will be subject to reassessment of its monthly returns and may incur penalties.

Should a business have any doubt as to the records or methods of record keeping required, an
accountant will assist in setting up a method of recording appropriate for the business and the obligations
under the law.

If income and expenditure cannot be determined accurately due to poor or little record keeping, or we
regard income and expenditure as being unrealistic for the business, IRC auditors will determine what
the income and expenditure should be. This will result in a reassessment of the businesses income and
expenditure and the recalculation of the monthly returns.

53) Tax Invoices

A Tax Invoice is a record of a purchase or a supply of goods or services and must show certain
additional information.

A supply of more than K50 is to be supported by a Tax Invoice to claim a GST input on a purchase. For
supplies less than K50, a receipt is acceptable.

54) Duplicate Tax Invoices

A registered person can only issue one Tax Invoice for each taxable supply. Lost invoices can be
replaced by requesting the supplier to provide a copy of the invoice in which they have 28 days to
provide. The copy is to be marked Copy Only.

55) Supplies of more than K200

For supplies of more than K200 the Tax Invoice must clearly show the following:
 GOODS AND SERVICES TAX GUIDE

- the words TAX INVOICE in a prominent place;

- the name and GST registration number of the supplier ;
- the name and address of the recipient (the purchaser);
- the date the invoice was issued;
- a description of the goods and/or services supplied;
- the quantity and/or volume of the goods or services supplied;
- The invoice must show the amount charged and, either the GST listed as a separate amount, or a
single amount (total price) inclusive of GST. If the latter is used, the invoice must have the words
This invoice includes GST charged at 10%, or words which clearly show that GST is included in
the price.

56) Supplies of K200 or less

For supplies of K200 or less (GST inclusive), a simplified Tax Invoice is permitted. It must show:
- the words TAX INVOICE in a prominent place;
- the name and registration number of the supplier (yourself);
- the date the invoice was issued;
- a description of the goods and/or services supplied;
- the total amount payable for the supply; and
- either the GST shown separately or a statement that GST is included.

57) Supplies of K50 or less

A Tax Invoice is not required for supplies of K50 or less. To claim GST back, a receipt for the purchase is
required showing the suppliers GST registration number and details of the goods purchased.

58) How to Complete a GST Return

The GST return has all the instructions you need to complete the return. The back of the return has more
detailed instructions if any explanation is required. If you have difficulty understanding the form or
difficulty completing it, phone the IRC Advisory Division and we will be happy to help you.

NOTE: Where a business operates in more than one province, total sales for each province are to be
declared on the page containing the remittance advice. The back of the return has an example of the
calculation. This will ensure that the sales in multi provinces, are allocated to the proper province and
that the province receives its correct share of the Provincial Distribution of GST.

59) Conclusion It is recommended that as part of normal business practice you seek professional
advice or contact the GST Advisory section if you are unsure of any procedure or technical aspect of
GST that you may encounter in relation to your business.

The GST Act is available for a nominal fee by contacting Imprint Copy Centre, P.O. Box 986 Port
Moresby.

Internal Revenue Commission Offices

Port Moresby - GST Division 322-6600, 321-1645, 321-2486, 321-1633 Fax 321-2928

Lae 472-7203, 472-2749, Fax 472-7474

Rabaul 982-1125, Fax 982-1925
Kokopo 982-8562
Goroka 732-3564, Fax 732-2606
Mt Hagen -542-1533, Fax/ph 542-1009
Wewak 856-1848 Fax 856-1555
Alotau 641-0329, Fax 641-0487
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Daru 645-9120, Fax 645-9122

Popondetta 329-7809, Fax 329-7805
Madang 852-3808, Fax 852-1922
Vanimo 857-1777, Fax 857-1717
Goroka 732-1404
Wabag 547-1184, Fax 547-1184
Kimbe 983-4346, Fax 983-4346
Manus 470-9376, Fax 470,9376
Kavieng 984-1032, Fax 984-1344
Buka 973-9243, Fax 973-9243

Authorised by Ms B. Palaso. OBE

Commissioner General
Internal Revenue Commission