Tax Hike on Logging Stymies Industry Growth

By David Lepi

There is a bitter irony in the developed world's environmental strategy: nations that prospered through deforestation and fossil fuels now mandate developing countries like Papua New Guinea (PNG) to conserve forests as a climate change mitigation measure, offering financial incentives for these carbon-stabilizing efforts.

This backdrop sets the stage for PNG's recent tax reforms. In December 2022, under Prime Minister James Marape's government, the export tax on logging was increased from 38% to 50%, then sharply to 70%. While these hikes bolstered the government's revenue, they simultaneously led to a dramatic downturn in the logging sector.

Treasurer Ian Ling-Stuckey's decision has been met with staunch criticism, especially from the vociferous politician, MP Belden Namah of Vanimo Green. Namah warns that the industry, once buoyant, is now crippled, citing the closure of 57 logging projects, leaving only 10 operational. This policy, according to Namah, is directly linked to the loss of 3,000 to 5,000 jobs.

Logging offers several economic advantages, including employment in multiple sectors, revenue generation from timber and its byproducts, fostering overall economic growth, and contributing to international trade. PNG, with two-thirds of its land under forest cover and harvesting levels below sustainable yields, has untapped potential in this industry. Despite this, the majority of its citizens remain impoverished.

Before the government's Connect PNG initiative, logging companies were instrumental in developing infrastructure and essential services like health and education in rural areas. Nonetheless, the environmental impact of logging, such as ecosystem damage, biodiversity loss, and social conflicts, cannot be ignored. Sustainable forestry practices are crucial to balance these economic benefits with environmental stewardship.

Sustainable forestry in PNG must overcome significant challenges, including minimizing social and cultural disruption, enhancing local development from forest management, and allocating sufficient resources to monitor logging activities.

The PNG Forest Industry Association outlines the market as follows: The industry mainly exports raw logs, especially to Asia, with China being the largest market. Processed products, though less significant, are also important, with markets in Australia, New Zealand, and other Pacific nations. Despite 48 years of independence, PNG's forest resources, like fisheries and agriculture, remain underutilized.

Advocates like MP Belden Namah, with extensive experience in forestry, assert that managing this sector sustainably is feasible and vital for PNG's economic advancement.

Lastly, the forestry sector in PNG faces one of the heaviest taxation burdens, which discourages investment and stifles economic growth. The Marape government's tax regime risks constraining the nation's economic potential, thereby limiting the taxable base and reducing opportunities for PNG's citizens to engage in the formal economy.