Tax Hikes: Too Harsh on Logging Industry?

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PAPUA NEW GUINEA RAINFOREST CAMPAIGN NEWS

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Forest Networking a Project of Ecological Enterprises

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8/13/99

OVERVIEW & COMMENTARY by EE

The National newspaper of Papua New Guinea, owned by Rimbunan Hijau

which happens to be the largest multi-national log exporting company,

has not surprisingly taken a very strident stance against

reinstatement of the previously suspended log export tax structure.

They must be feeling that their interests are very threatened indeed.

Daily Rimbunan Hijau's National newspaper lets loose a barrage of

criticism against the notion that log export should pay a reasonable

economic return to the state (and not 0% tax on most of the value of

logs at current prices as was previously the case) and to landowners.

Not surprisingly, Greenpeace has a different view on the subject, and

their reaction to the tax change is included also. If forest

resources can not be harvested in a manner that is environmentally

sound and sustainable, brings tax revenues to the state, provides for

development options now and in the future for landowners, and still

provides for profit by the logging interests--than perhaps the forests

should be left standing and/or utilized differently than solely for

export logging.

g.b.

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ITEM #1

Title: 'Tax hikes too harsh on logging industry'

Source: The National

Date: August 12, 1999

Byline: NIKINTS TIPTIP

PORT MORESBY: PNG Forest Industries Association (PNGFIA) president

Anthony Honey has described the mini-budget export tax increase for

the logging industry as "unbalanced and will cost the resource owners

and investors dearly".

"The resource owners, who are already struggling with the escalating

inflation will, when the industry collapses, receive reduced income

and services.

"Additionally, food and fuel costs are now well beyond the average

income of the rural inhabitants. Their fate to a large extent lies in

the Government's handling of the forest sector," he said.

Mr Honey added that the reintroduction of the old tax regime would

result in the Government forfeiting the K50 million monthly foreign

exchange that they (the Government) currently receive, resulting in

the loss of K600 million foreign currency earnings per year.

"The Government's belief that the depressed market conditions are over

is a fallacy, and what the Government has failed to do is recognise

the devaluation of the Kina against the US dollar, which effectively

has maintained the level of tax that existed prior to its reduction.

"Log export tax is Kina-based, not US dollar-based. The current FOB

values are US$77 (K220) per cubic metre. The reintroduction of the old

tax regime increases the existing tax from 26 per cent to 38 per cent.

"This coupled with the VAT, royalty, premium, levies and

infrastructure benefits would see the state and resource owners'

income exceed 56 per cent of the FOB value," Mr Honey said.

He added that the government has ignored the cost factor in producing

logs for export.

"This is the only industry that is taxed on its operating cost, and it

is the only industry to bring all of its foreign earnings onshore

compared with other industries," he said.

Rimbunan Hijau, a major investor in the forestry industry, expressed

fear that logging operators will be forced to close as a direct result

of the increased export tax. (The government hopes to raise K15

million through log export taxes).

Its general manager Mr James Lau said: "The current level of export is

priced at US$77 to US$85 (K242) per cubic metre, which is far less

than it was in the past when the Kina stood well against the US

dollar.

"With the new tax, exporters will lose US$4 to US$10 (K11.40 to

K28.50) per cubic metre and this is will be very unfortunate for the

industry as well as the investors."

He added that the VAT was another burden placed on the industry and

together with the increased export tax, this would make it "near

impossible for even the most efficient operators to survive".

PNG Chamber of Commerce and Industry president Michael Mayberry said

the crux of the problem in the industry was the government not

trusting the industry with their foreign earnings report.

He said it would be interesting to see some of these logging operators

close down and then the government will really believe that they have

been operating smoothly.

ITEM #2

Title: FIA wants a review of extra taxes

Source: The National

Date: August 12, 1999

Byline: NIKINTS TIPTIP

PORT MORESBY: The Forest Industries Association (FIA) has called for a

review of the increase in export tax rates announced in the Mini

Budget.

Executive Officer of the association Robert Tate, commenting on the

proposed increase yesterday, said export tax rates had already

increased by 19 per cent since last November due to the devaluation of

the Kina.

"This latest increase of another 12 per cent is totally unjustified

given current prices and will surely force most forest operations to

close," he said.

Mr Tate said the country's forestry industry is still trying to

rebuild itself after the disastrous conditions faced during 1998.

For example, he said, export prices are still US$41 (K17.14) per cubic

metre - 35 per cent less than they were in 1997.

"The government has now seen fit to re-impose export tax at

unsustainable rates ... We can only conclude that the government wants

to shut down PNG's forest industry," he said.

"Despite recent calls for consultation between the government and

industry, the government has acted unilaterally.

It also appears to view PNG's forest resources as a gold mine which

they can exploit to make up any cash shortfall in the government

budget, he added.

"The government has chosen to ignore the recent World Bank study into

the industry which found that the lowest cost of production of logs is

US$47 (K134.29) per cubic metre up to a high of US$75.

"At current export prices, and after payment of export duty, levies,

royalties and landowner payments, most producers will lose between

US$4 (K11.43) to US$10 (K28.57) per cubic metre.

"No producer, in any industry, will stay in business to lose money,"

Mr Tate said.

"Forest companies operating in PNG, having weathered last year's

crisis, are in no position to survive a government imposed cash loss

on operations situation.

"An initial survey of members of the Association revealed that

operations will now close and up to 90 per cent of PNG's log exports

will be lost.

This will have a disastrous impact on the rural economy of PNG and for

landowners within forest concession areas."

He noted that since the Government has failed to provide services and

infrastructure in the rural areas, it has been the forest industry

which has assumed these functions.

"By taxing the industry out of existence, the people will be left with

nothing," Mr Tate stressed.

ITEM #3

Title: GREENPEACE APPLAUDS LOG TAX REINSTATEMENT

Source: Greenpeace Pacific, greenpeace@is.com.fj

Status: Distribute freely with credit given to source

Date: August 11, 1999

Byline: NIKINTS TIPTIP

PORT MORESBY, August 11, 1999: Greenpeace welcomes the reinstatement

of log export taxes to 1998 levels as announced in the Government's

mini-budget this week.

Forests specialist Brian Brunton says it's a good move.

"We congratulate Prime Minister Sir Mekere Morauta and urge him not to

listen to loggers who threaten the taxes will bring the industry to a

halt," Brunton said.

The Forest Industry Association claims the reinstatement of the taxes

will mean loggers won't be able to pay royalties to landowners.

Brunton rubbishes this claim, and asks Sir Mekere to now look at the

role the FIA plays on the Forest Authority Board. "As far as we are

concerned, the FIA shouldn't be sitting on that board at all," he

said.

Greenpeace and other environmental non-government organisations have

been vocal in their opposition of last year's decision to reduce log

taxes. "The tax reductions allowed foreign logging companies to make

windfall profits", said Brunton.

"It led to an increase in export logging. Export logging is the main

cause of forest loss in Papua New Guinea. It is in this environment

that we urge the Government of Sir Mekere to consider our earlier

calls for a moratorium on new logging concessions," Brunton said.

For more information call Brian Brunton in Port Moresby: 675 320560

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For further information, contact Pacific Concerns Resource Centre on

(679) 304649 or Greenpeace on (679) 312861

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