Was there substance on Gary Juffa’s claim on tax exemptions and holidays?
Read Part One here, focus on RD Cannery:
Post Two: Tuna Revenues – Lost Opportunity, Lost Revenue
“[extract if GJ’s speech]…Meanwhile we have given too much tax exemptions and tax holidays to all types of criminal pirates and cartels that have come here to enrich themselves at our cost.” Gary Juffa.
In the first post [see link above] we looked at whether Gary Juffa’s claims [see quote above] was backed by evidence, using RD Tuna Cannery in Madang as a case study. In this piece we look at PNG’s potential loss [or revenue already lost] as a result of tax exemptions, and discount to license and access fees to fishing companies. These posts are derived from a paper I wrote for the National Research Institute titled “Generating Internal Revenues and Employment from the Tuna Industry for Bougainville” which will be published later this month. As a result, I’m leaving gaps in the posts (so you can look forward to reading the paper from NRI :-)).
The main revenues from tuna for PNG at the moment are collected from license and access fees, the revenues from these fees alone in 2016, year for which the latest data is available is K436.23 million (USD 128.8 million). That’s a lot of money, but the question is, if PNG Government did not give discounts to license and access fees would it have earned more?
What was the discount for anyway? Well the government decided that any fishing company that agreed to land “at least” 10% of the catch onshore for processing be given discounts. Instead of paying the full fees, they would pay less. This is not the equivalent of tax exemption given to companies like RD Cannery, where canning companies don’t have to pay any taxes and fees on tuna caught for the next 10 years after its establishment.
So how did the fishing vessels behave given these discounts? In 2018, reviews of the rebates by PNG officials revealed that about 80% of the tuna were processed offshore (not in PNG), whilst PNG-flagged tuna vessels sometimes did not visit PNG ports for a year (ABC Pacific Beat, December, 2017). Not only did PNG miss out on much by giving all kinds of discounts and tax exemptions (see the post on RD Cannery), but the fact that the fishing vessels were processing 80% of the catch overseas took away jobs, spin-off benefits, and potential taxes after the 10 years tax holidays were up.
Tax exemptions and discounts would only make sense if there is net gains, that is, if you gave exemptions, but the benefits far exceeded the value of money you lost by giving tax exemptions or discounts. In this case, PNG lost both value of money it could have earned by implementing strict license and access fees as well as taxes, employment, etc. As stated earlier, this led to a loss of K300 million (USD 88.74 million) in direct incomes, K1 billion in taxes (USD 294 million) and about 15,000 jobs between 2008 and 2018 (Post Courier, 4th January 2018).
There is something PNG Government needs to be aware of: that when it comes to tuna, PNG controls about 50% of skipjack (most commonly canned tuna) and about 20% of yellowfin of the world. You cannot find that magnitude anywhere else in the world. These fishing vessels and canneries will not leave PNG and go elsewhere if you negotiate your fair share. Where else would they go?
The government in 2018 announced that discounts will now only be given to vessels that process 100% of their catch in PNG. This is a good start. The challenge will to make sure they do that.
Also, visit their processing facilities to see their capacities (how many tonnes can their tuna processing facility accommodate). If its small, they can either expand it to process 100% of the tuna caught, pay taxes, and create more employment, or they can maintain their small capacity, but have to pay for access tuna before they send overseas. By charging them high prices on excess tuna sent overseas, they will be forced to process 100% in PNG. Removing tax exemptions alone is not enough. The value, in terms of revenues to PNG, is higher when tuna is processed than when it is exported raw.
Having said all that, the cost of doing business in PNG is high, including lack of necessary infrastructure and services, and distance to markets (EU is far far away). I’m not arguing for complete elimination of preferences such as rebates. But there should be a balance, where PNG has a “net-benefit” at the end.
NB: For those who asked whether the analysis for RD Cannery in the first post applied to canneries in Wewak and Lae, generally the answer is Yes. I understand that canneries in Lae were also given tax holidays, so I assume Wewak would be the same. I don’t know of their processing capacity. But if its small, then they probably send the balance tuna overseas.
As I stated above, I left most details and analysis out, as it is part. You can read it when full paper is published.