Papua New Guinea Income Tax Act 2025 — First-Ever CGT on Extractive Asset Transfers

Mechanism

The Income Tax Act 2025 is the most significant overhaul of Papua New Guinea's fiscal code since 1959. The original Act ran to over 600 sections; the 2025 rewrite reduces section count by roughly half and cuts length by ~80% while introducing substantively new fiscal levers.

Capital Gains Tax on Extractive Assets (15%) For the first time in PNG's history, gains realised on the disposal of an interest in a mining tenement, petroleum or gas licence, or associated processing and transport infrastructure are subject to a flat 15% CGT. The CGT base is the net gain (proceeds minus original cost plus permitted capital improvements). There is no annual exemption threshold and no roll-over relief for intra-group transfers without recognition of economic change. At 15%, PNG's CGT on extractives is broadly in line with Australian corporate CGT (25-30% effective) and more aggressive than Fiji (no CGT) but below Zambia's 2025 Minerals Royalty Tax escalation regime.

Offshore Indirect Transfer (OIT) Rule The OIT rule is the primary chokepoint provision. It operates as follows:

1. A "disposition event" is triggered when any transaction causes a 10% or greater change in the beneficial ownership of any entity that holds, directly or indirectly, a PNG extractive licence or tenement. 2. The entity holding the PNG licence (the "licensee") bears a notification obligation to the IRC (Internal Revenue Commission) within 30 days of becoming aware. 3. The offshore transferor (the entity that changed its shareholding) is treated as having made a deemed disposal of its proportionate interest in the underlying PNG extractive asset — irrespective of where the share transfer itself is executed or taxed. 4. CGT at 15% is levied on the deemed gain (fair-market value of the PNG asset interest at date of transfer, less cost base).

This closes the structure routinely used by Chinese, Australian, and Canadian resource companies: routing PNG asset acquisitions through BVI, Cayman, Singapore, or Australian holding companies so that the "transfer" was of shares in an offshore entity — which carried no PNG domestic-tax nexus under the 1959 Act. The OIT rule makes such structures taxable regardless of where the share sale occurs.

Replacement of the 1959 Act The 2025 Act consolidates 66 years of amendment and patch-work provisions into a single instrument. Key operational changes besides CGT include: modernised transfer-pricing rules aligned to OECD BEPS Action 13; a participation-exemption for dividends received by PNG holding companies from PNG subsidiaries (preventing cascading taxation in PNG corporate groups); updated thin-capitalisation thresholds; and a simplified depreciation schedule for resource sector capital assets.

Downstream implications

• M&A transaction costs on PNG mineral assets increase materially. Any portfolio rebalancing involving Ok Tedi (copper/gold), Wafi-Golpu (Newmont/Harmony — NEM, HMY), Porgera (Barrick — GOLD), Frieda River (PanAust/First Quantum), or Yandera (molybdenum/copper) now carries an explicit 15% CGT drag on the gain component. For assets with large unrealised gains — Porgera's resource base has appreciated significantly since the 2019 suspension — this can be economically significant.
• Offshore holding-company structures are taxable. The OIT rule neutralises the benefit of holding PNG mining licences through BVI, Cayman, Singapore, or Australian interposed entities. This increases legal complexity and transaction costs for all cross-border M&A in PNG extractives.
• Chinese state-enterprise exposure. Chinese geological interest in PNG copper-cobalt-nickel laterite assets (PNG Geological Survey MOU with China Geological Survey, November 2024) may face higher acquisition-cost barriers if OIT rules attach to exploratory JV formation or to any future equity assignment.
• Complementary with Mining Bill 2025. The Mining Bill 2025 (filed 2025-02-25) introduces a 30% state equity right and tiered royalties. The CGT/OIT layer sits on top of those operational obligations — together, they represent a comprehensive "Take Back PNG" fiscal-and-regulatory stack that raises the all-in cost of PNG resource exposure for foreign investors.
• PNG Treasury revenue potential modest near-term. PNG has relatively few large active asset sales per year; CGT realisation depends on M&A activity. Revenue impact in early years is estimated to be small relative to total extractive-sector tax take (LNG and mining royalties dominate). The OIT rule has a more significant deterrent / signalling effect than immediate revenue impact.

Open questions

• Whether transition relief applies to transactions signed pre-2026 but closing post-1 January 2026 (standard "lock-up" and "binding commitment" clauses in mining M&A — not resolved in current Act text per PwC analysis).
• Whether PNG's evolving resource royalty framework (Mining Bill 2025, if enacted) will create double-taxation exposure on the same asset disposal (royalty on resource extraction + CGT on asset sale).
• Implementing regulations for the OIT notification mechanism — IRC procedural rules not yet gazetted as of early 2026.
• Treatment of project finance (debt-to-equity swaps by lender syndicates exercising step-in rights) — not explicitly carved out.