PNG misses out on millions from loggers' widespread tax evasion

Transcript

Papua New Guinea is losing out on hundreds of millions of much needed dollars because of a complex web of tax evasion by overseas logging companies.

A new report from the US based research group, The Oakley Institute, exposes massive tax evasion and financial misreporting by logging companies mainly operating on the controversial Special Agricultural Business Leases.

The report's author, Frederic Mousseau, investigated the financial records of dozens of companies, including the Malaysian giant Rimbunan Hijau, and found that many have reported little or no profit for over a decade.

He told Jamie Tahana the report reveals widespread abuse by forestry companies, and millions of Papua New Guineans are missing out on the tax revenue.

FREDERIC MOUSSEAU: We are talking about hundreds of millions of dollars every year, certainly. But it's also astonishing in terms of the pattern that we are uncovering, which is basically that these loggin companies which have been operating for decades in the country, all of them, well most of them claim to be operating at a loss, they are not making any profit really puzzling when you look at the activities of the industry -- Papua New Guinea is now the first exporter of tropical wood in the world -- discovering today that, no, this is not a profitable business apparently for these companies.

JAMIE TAHANA: And these companies are somehow still afloat after more than 10 years of operating at a loss. That's pretty much what you've found, isn't it?

FM: Yeah, basically we find it really hard to believe that it could stay in business and keep operating this way for decades as they've been doing, and that's why we've been investigating their activities of the number of specific companies, especially those of this large Malaysian group, Rimbunan Hijau, which is one of the largest logging groups in Papua New Guinea. But also looking at the industry as a whole, and comparing it to what's happening in other countries in terms of prices and practices and we've found that there are a number of elements which really suggest that massive tax evasion is taking place in Papua New Guinea.

JT: Yeah, so if we go into these practices how are these companies, particularly Rimbunan Hijau, doing it?

FM: Basically, there are two known mechanisms that are used by logging companies to evade taxes. The first one is to under-price your exports -- you declare very low prices for your exports, therefore your income and your profits are low and this is definitely something that seems to be happening in Papua New Guinea because the timber that is sold from Papua New Guinea is half the price of what you find from all the major exporters of tropical timber, so half of the price is such a huge difference, it's a widening gape that we have seen over recent years. So that's one way, the other way is what we know is happening all over the world with tax evasion, but certainly very acutely in Papua New Guinea is that it is not just a few groups and firms that are operating in logging, it's a web of subsidiaries and holding companies. I mean, we have a chart in our report which takes a long time to read because you see all these different companies and subsidiaries involved in the logging operations which means that basically all companies belonging to certain groups in Rimbunan Hijau can charge each other for different services related to the logging operation, and they are all sister companies but they will charge expenses to each other. We found looking at the accounts of some of these companies, we found in one logging operation the financial transactions with 16 other subsidiaries of the same group in the same project in West Pomio.  

JT:  So basically what you've uncovered is a massive orchestrated web to avoid tax?

FM:  What we can clearly see is that there is something wrong with the logging industry that is, and has been, destroying the forests and the livelihoods of thousands or millions of people in Papua New Guinea over the years, and at the same time, when we are told of 'yes we need to have some [logging] for development and have some public revenue,' [which] is what the industry and their proponents are saying then we see that actually, no the public revenue is not coming and it's actually taken away in these tax havens by these millionaires and moguls who are running these operations. So there is really something wrong happening and we really hope the government can be prompted to take action by this report and the evidence we've put forward.

JT: Is Rimbunan Hijau the only company doing this, or this widespread across many of the companies which do operate in Papua New Guinea?

FM: It is puzzling because it seems that most of the logging industry is operating in the same way. Basically, what we've found is that one single company is not really logging and exporting wood but working with plantations and local processing, so one single company accounts for 60-90 percent of every single year of the profits of the industry, of the whole industry in Papua New Guinea and therefore of the income tax, and it appears that most of the other companies are working either at loss, or with very, very tiny profits and this should really raise questions for all the industry apart from maybe a couple of companies who are doing the right thing. But most of it seems to be a very, very serious problem to tackle for the government.