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Tax avoidance by logging companies costing PNG more than $100 million a year, report says

Tax avoidance by logging companies costing PNG more than $100 million a year, report says

Tax avoidance by logging companies costing PNG more than $100 million a year, report says

Updated 18 February 2016, 13:20 AEDT

Tax avoidance by foreign logging companies is costing Papua New Guinea hundreds of millions of dollars, according to a new report by the Californian-based Oakland Institute.

The revelations come as PNG faces its worst cash flow crisis this century with health and education services not receiving expected funding and politicians and public servants not being paid on time.

The Oakland Institute investigated the financial and taxation records of dozens of firms, including the Malaysian giant Rimbunan Hijau (RH).

It found logging interests are using groups of linked companies to shift profit offshore, robbing PNG of tax revenue.

"Looking at the losses in terms of income tax and export duties it is certainly over $100 million a year," Oakland Institute policy director Frederic Mousseau told Pacific Beat.

The report, called The Great Timber Heist, found most of the logging industry in PNG has declared little or no profit, in some cases for more than a decade.

It pointed to transfer pricing — the shifting of profits offshore by underpricing of exports to sister companies or overpricing of charges for consultants or services.

At a single logging site in Pomio, in East New Britain Province, the Oakland Institute found a local subsidiary of Rimbunan Hijau (RH), Gilford Ltd, listed in its accounts 15 other RH companies.

"It is quite alarming," said Eddie Tanago, spokesperson for PNG activist group Act Now.

"The logging companies are destroying the livelihoods of the local people by taking over the land and according to the report many claim they make losses, year after year ... and yet they remain in business.

"This is a lot of money we are talking about that the Government is missing — money that was supposed to be for providing services to the people."

Logging price going backwards in PNG

It is likely that Papua New Guinea is being hit harder by transfer pricing than other tropical timber countries.

PNG is now the world's the biggest exporter of tropical logs, having recently overtaken Malaysia, but the price it receives for its logs is going backwards.

Over the past 15 years PNG's prices have been on average 26 per cent lower than world price for tropical timber. In 2014 they dropped to 46 per cent lower, the Oakland Institute report found.

"Basically it is half of the price of the other timber in the world and this makes hundreds of millions of dollars of difference in terms of revenue," Mr Mousseau said.

Much of PNG's logging takes place on contested ground.

In 2012, a Commission of Inquiry into Special Agricultural and Business leases (SABLs) looked in to how 5.5 million hectares was leased, mostly to timber companies often without consent of traditional landowners.

It recommended the cancellation of many of the leases.

In a written statement to the ABC, the Inquiry's Chief Commissioner John Numapo said: "the delay by the PNG Government to implement the recommendations of the SABL has resulted in continuation of logging operations which has now given rise to this issue on transfer pricing".

Mr Numapo said the Government has not abided by its promised moratorium on issuing new Special Agricultural and Business leases.

Mr Tanago said the findings of the Oakland Institute report made it more urgent that Prime Minister Peter O'Neill live up to his commitment to revoke suspect leases.

"Act Now supports the call from the Oakland Institute for the Internal Revenue Commission to urgently act on the report findings investigate the logging industry," he said.

"There has to be action taken against those found guilty of wrongdoing."