Vision 2050, Papua New Guinea’s long-term national development strategy, emphasises the tourism industry’s potential to become a key driver of economic growth, particularly with respect to creating rural and urban employment opportunities. A number of incentives to help spur investment in the sector are laid out in the Medium Term Development Plan 2016-17.
Incentives
There are two main types of incentives: double tax deductions and accelerated depreciation. The former applies to operators promoting tourism abroad, and the latter applies to large-scale capital investments, such as hotel or restaurant construction.
Double tax deductions can lead to significant tax savings as eligible expenses are offset against both assessable and taxable incomes, acting as a sort of subsidy for tourism operators. Double deductions are available for export market development costs, primarily overseas marketing and promotional costs, that include, but are not limited to, advertisements in media outside PNG, market research costs, travel costs for the purpose of participating in trade fairs and the cost of maintaining sales offices abroad. Double deduction also applies to certain tourism staff training costs.
An initial-year accelerated depreciation rate of 55% applies to all “eligible property”, namely capital equipment with an effective life of more than five years, owned by tourism businesses that meet certain standards of classification – primarily hotels, camping sites, restaurants and bars. When added to other incentives available under the tax code, qualifying items will be fully depreciated after 10 years. For instance, if a dive resort buys a new backup generator, it would qualify for an initial 15% depreciation rate under Section 75 of the Income Tax Act and another 55% as described above. An additional 10% would be applicable for each of the subsequent three years, adding up to 100% of the item’s initial value after four years.
There is also a concessional 20% tax rate for large-scale tourist accommodation facilities, a substantial reduction from the normal 30% for businesses. It starts during the year the facility first derives income and lasts a total of 10 years. This tax break applies to new lodging as well as upgrades made to smaller facilities, so long as post-renovation the project meets the criteria set for large-scale accommodation. To qualify for the reduced rate, the project must also satisfy other terms related to costs and the number of rooms it has.
Hotels
Such incentives, combined with rising levels of business and meetings, incentives, conferences and events travellers, have made investments in hotels particularly attractive. Indeed, the stock of high-end accommodation in Port Moresby is set to increase substantially as two major developments, the Stanley Hotel and the Hilton Port Moresby, open for business.
The first, with 433 rooms, was developed by local conglomerate RH Group and opened in mid-2016, and the second, due to open in early 2017, will have 212 rooms and is part of a larger complex financed by three major provincial landowner companies. When finished, high-end rooms in Port Moresby will have increased by over a third. There are also considerable opportunities in areas with tourism potential outside of the capital, such as Kokopo and Milne Bay.
Development Costs
While double tax reductions and accelerated depreciation have proven very helpful for the sector, some industry players would like to see more support from the government, given how much emphasis it is placing on the economic potential of tourism. Costs of development, in particular, are very high due to PNG’s relative lack of connectivity. “To build a resort, most materials have to come from places like Bali or Thailand and are very expensive to import,” Alex Wilson, general manager of the Grand Papua Hotel, told OBG, “If we were to use local materials, the costs would increase four to five times.” To help alleviate these cost issues, Wilson said, he would like to see more support from the government in the form of subsidies as well as reduced Customs fees on imported materials.
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