GST S.65A

SECTION 65A of the GST Act – Payment of Tax in Special Cases

To all suppliers and service providers to Government Departments including the State-Owned Enterprises; the Internal Revenue Commission’s (IRC) intends to issue GST withholding Notices under Section 65A of the GST Act– Payment of Tax in Special Cases.

Why is it important to issue a Section 65A notice?

GST, is not an expense to the business, it is passed on along the supply chain where value is added and eventually borne by the final consumer. It is important that persons conducting businesses are registered for GST and correctly accounting and pay GST to the IRC

What is GST?

A Goods and Services Tax or GST is an indirect tax, which is imposed on the sale of all goods and services in Papua New Guinea and on the importation of goods into Papua New Guinea. GST is imposed at a rate of 10% on the value of the goods and services sold (or goods imported).

Three Steps to understanding and accounting for GST

  • Step 1) GST is charged by a registered person on the provision of goods and services. GST charged is called output debit
  • Step 2) Registered persons purchasing goods and services will pay 10% GST. The GST paid is claimed as input credit.
  • Step 3) GST payable or refundable is calculated by subtracting the GST paid (input credit) from the charged (output tax).

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. Therefore, GST is not an expense to the business.
An example of reporting for sales including the GST charged and GST incurred in the GST return, G1 Form by a registered business

Total sales including GST charged K11,000
GST you have charged  on sales – Output Tax K1000
Less GST you have paid to suppliers – Input Credit K750
You pay to IRC K 250

Why is it important to issue a Section 65A notice?

The Commissioner General may issue a notice to a person to withhold the GST charged by one or all of its suppliers and remit the GST to the IRC, under Section 65A GST Act 2007

Who will it affect?

A person who receives the Section 65A notice from the Commissioner General of IRC and their supplier(s).

When will it be implemented?

Currently, Section 65A notice has been issued to certain exporters of coffee and cocoa. The Commission has decided to extend to suppliers/ service providers to Government Departments and State-Owned Enterprises to address GST revenue leakages and improve tax compliance.

The IRC is currently working on the improvement of its business processes relating to GST refunds and Section 65A. Once work is completed the Commissioner General will issue Section 65A Notices to certain Government Departments and State Owned Entities that pay GST to their service providers for the provision of good and services.

What is the implication on the issuance of the Section 65A notice?

It changes how GST is accounted for and reported by the person receiving the notice and the supplier(s). The person receiving the notice is now required to file two returns; G1 Form – GST return to account for GST in its business operations and the G2, G4, G5, or G6 Form which is the remittance form for the GST it has withheld from its supplier(s).

Failure to comply with this notice would result in financial administrative penalties including possible prosecution imposed on the receiver of the Notice.

The supplier like all other persons who are registered for GST is required to file its return by the 21st day of the following month and declare its sales including GST being the GST incurred and the amount of GST that has been withheld. Since the GST charged has been withheld and remitted to the IRC, the supplier has not deducted his GST incurred input credit. Hence, the supplier would be entitled to a refund for the GST they have paid for their business activities on the basis that the supplier has incurred the GST and has provided the information/documentation to substantiate his refund claims.
For example;

Total sales including GST charged K11,000
GST you have collected from sales – Output Tax remitted to IRC K1000
Less GST you have paid to suppliers – Input Credit K750
You should have paid to IRC K 250
Less: Section 65A Payment K1,000
GST Refundable K750

How can the supplier claim its GST refund from IRC?

To claim your refund you are required to file your GST return each month declaring your sales including the GST charged, the GST incurred, and the amount of GST that has been withheld. You are also required to attach a supplier listing which could be an excel spreadsheet listing details of your expenses. Information required in the supplier listing includes, Name of the supplier, Taxpayer Identification Number (TIN), the amount incurred, the GST amount paid, nature of the expenses, and other information as required

Where to lodge your GST return, G1 Form, and Withholding form, G2 form?

All persons subject to Section 65A notices are required to lodge the G1 form, GST return, and G2 form, Section 65A withholding with payments at the IRC Head Office in Port Moresby.

Who to contact?

SUBJECT CONTACT PERSON TELEPHONE
NUMBER
EMAIL
Lodgement of returns,
G1 and G2 forms and payments
Mrs Helena Solien 3226884 solienh@irc.gov.pg
Lodgement of returns,
G1 and G2 forms and payments
Ms. Arua Naime 3226714 naimea@irc.gov.pg
GST Refunds Degemba Gigmai 3226939 gigmaid@irc.gov.pg
GST Advice Anoko Sasi 3226797 sasia@irc.gov.pg
GST Advice Steve Burke 3226546 burkes@irc.gov.pg

 

COLLECTING GST DIRECTLY THROUGH IFMS “NO TIN NO CHEQUE”

All current and future suppliers and service providers to the Government of PNG are hereby informed that the Internal Revenue Commission (IRC), through collaboration with the Department of Finance will collect the GST directly from the Integrated Financial Management System (IFMS) commencing 1 May 2021.

The IRC trialled the GST section 65A project with 16 agencies (some Government Departments and State Owned Entities) and have raised well over K20 million in the last 6 months. This was done manually.

At a small but significant event held on Monday 12th April at the APEC Haus, the Minister for Finance, Hon Sir John Pundari, launched what is dubbed as “GST Section 65A Notice” to be configured in the IFMS to facilitate the direct transfer of GST components directly to IRC on account of suppliers. This will be facilitated by the Department of Finance.

The automation is anticipated to increase efficiency and cohesiveness in collections and reduce administrative burden. It sets the tone for the path we want to embark on – to move away from laborious methods of collection by investing in technology.

We will have all 37 national government departments that currently use IFMS to participate as part of phase 1 next month, followed by statutory authorities in the second phase and sub national entities (provincial and district governments) in phase 3.

List of authorised GST section 65A withholders under this program

  Agencies/Provincial Governments
1 Department of Education
2 Department of Health
3 Department of Works
4 Department  of  Prime  Minister  & NEC
5 Department of Treasury
6 Department of Finance
7 Department of National  Planning & Monitoring
8 Department of Personnel Management
9 Department of Defence
10 Department of Higher Education, Research, Science &  Technology (DHERST)
11 Royal Papua New Guinea Constabulary
12 National Fisheries Authority
13 Kumul Petroleum Holdings Ltd
14 National Airports Corporation
*15 Internal Revenue Commission (IRC)
16 Department of Implementation & Rural Development
17 Department of Agriculture & Livestock
18 Department of Commerce & Industry
19 Department of Justice & Attorney General
20 Department  of  Lands  &  Physical Planning
21 Department  of  Mineral  Policy  & Geohazards
22 Department of Petroleum & Energy
23 Department of Transport
24 Department  of  Foreign  Affairs  & International Trade
25 Department of Information, Communication & Technology
26 Department of Labour & Industrial Relations
27 Department of Provincial & Local Government Affairs
28 National  Coordination  Office  for Bougainville Affairs
29 National Intelligence Office
30 National Statistical Office
31 Office of the Registrar of Political Parties
32 Office of the Governor General
33 Office of the Public Prosecutor
34 Office of the Censorship
35 Pacific Institute of Leadership and Governance
36 PNG Correctional services
37 PNG Electoral Commission
39 PNG Fire Services
40 Public Service Commission
41 Office of the Public Solicitor
*42 Autonomous Region of  Bougainville
*43 East New Britain Provincial Government
*44 New Ireland Provincial Government
*45 Enga Provincial Government
*46 Hela Provincial Government
*47 Manus Provincial Government

Those who are engaged by the Government entities must also be aware that under this arrangement, all suppliers without a Taxpayer Identification Number (TIN) will have their payments on hold until being formally registered with the IRC.

The IRC and the Department of Finance will be working together to provide training and awareness to the 37 agencies on the changes in IFMS and the GST section 65A process. The 37 agencies will be advised when they are scheduled for the training and awareness.

The GST Section 65A Notice grants permission from the IRC for these government agencies to act on behalf of the IRC and withhold the payment of GST on their supplier invoices, which will then be remitted directly to the IRC.

Therefore, the IRC would like to stress that if any member of the public or contractor has provided an invoiced good or service to the agencies mentioned above after August 1st, 2020, the GST portion of your invoice will be withheld.

The above list will be updated once other government entities are served with the Section 65A notice.

 

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