23/08/2022
Public Servants! Your collective voices can make the difference. Thank you Kessy Sawang
Shalom beloveds,
I’m humbled that many of you were inspired by my story on living in ‘shared-rental’ accommodation in Port Moresby and Lae [in both settlements and suburbs] as I could not afford high housing costs. And how I utilized the ‘voluntary contribution’ service of Super Fund to save 15% of my salary for 8 years to be eligible for a housing advance, which helped me pay 30% equity for my first home.
Housing affordability in PNG is beyond the reach of majority low-income earners. By housing, I mean both rental accommodation as well as home ownership. Greedy landlords have taken advantage of the unregulated urban real estate and rental markets to charge exorbitant prices, even for poor quality. We can talk about these challenges till kingdom come. Or we can take some course of action to help ourselves.
In this post, I want to give you my second tip on how you can use certain employment entitlements to own your first home, paying ‘zero tax’ on that income. You can do this legally utilizing Section 29(1)(r) of the Income Tax Act [ITA].
Private companies do assist their employees access these funds tax-free. Not the case for public servants, though. That’s what I found out a few years ago when I was applying for mine. Not sure if the government payroll system has been changed now to assist employees.
Section 29(1)(r) ITA states that “repayable amounts advanced to a first home owner for the purpose of purchasing property used for housing the cost of which was K400,000 or less where these advances have been debited against amounts owed in respect of recreation leave, furlough, superannuation or gratuity entitlements” are exempt from Income Tax.
I did not ask for an advance [which would have been repayable]. Instead, I asked my employer to pay the gratuity and furlough entitlements it owes me directly to BSP Bank who financed my home.
I was advised it won’t be possible because the Government payroll system will still automatically calculate the tax on my entitlements. And that is the problem affecting public servants.
Even though the tax law exempts from tax those entitlements that goes towards purchase of the first home, the payroll system has not been set up to assist employees access these benefits tax-free. This is a great injustice to the hard-working public servants. I have discussed this with our good Secretary for DPM as few years ago. Hope it has been verified.
Let’s use an example of a government officer who receives annual gratuity to illustrate the value that you will get:
Say you’re a government official on a contract of K83,000 base salary per year. You fall within the 40% tax category on your taxable income. You are also entitled to a 25% annual gratuity, which is K20,750 [ie, 25% of K83,000].
According to Section 29(1)(r) ITA, if you’re a first home buyer and would like this K20,750 to go towards the purchase of your home, it should be exempt from tax. Meaning, you get the full K20,750.
Unfortunately, GoPNG’s payroll system does not give public servants this opportunity. When your gratuity is due, the Concept payroll system will automatically tax you 40%.
That is K8,300 in tax that you could have paid directly to service the mortgage of your first home. If you’re on the standard 3-year contract, that is K24,900 that you could have paid your first home mortgage or contribute to your equity, instead of tax.
The same can be applied for your recreation leave, furlough [after working 15 years], and superannuation. The private sector effectively uses the provisions of ITA Section 29 to assist their employees pay school fees, first home, salary packaging, etc, and save on paying taxes.
For my case, I made submission to DPM, that it will be illegal for my employer [GoPNG] to tax my furlough and gratuity when I have opted to use them to purchase my first home. I was told it was “first-of-its-kind” request as all salaries and entitlements goes through the payroll “system” and taxed.
I’m deeply grateful to DPM Secretary, who directed her officials to do due diligence with Finance & IRC on Section 29(1)(r) and they confirmed that it should be tax-free if it’s going directly to the financial institution to purchase my first home. Once I got DPM approval, another hurdle arose.
The Government has this “one-position-one-pay” policy. And that all government employees confirmed on a position should be paid through the GoPNG payroll system, and not offline. Payment through the ‘system’ means I will be taxed 40%. There are no provisions for Section 29(1)(r) in the GoPNG payroll system. This means, public servants who wish to use their entitlements towards paying their first home cannot do so. If they do, they will be illegally taxed.
It wasn’t easy raising these issues. My then employer PNG Customs Service did not pay me for over 2 years! They said they can’t pay me offline, and that they have to close me off the payroll system (since I had resigned by then).
They said the “system” can’t allow that so fine I lived on in PNGCS institutional accommodation rent-free for the two and half years after I resigned. I knew that sooner, officers who wish to move into the house will put pressure on the management to sort me out. Yep! It happened. They raised a check “offline” to BSP.
I thought that was it. But a few years later, I got employed at the Ministry for Inter Government Relations. I wasn’t paid for 3 months, so I went to inquire at the Ministerial Services. The officer said “sorry, according to the “system”, you are still on PNGCS payroll so we can’t pay you”. Patiently, I had to explain the whole thing, and get a support letter with account statement from PNGCS.
TAKE-HOME MESSAGE
▪ You can save up for your first home using the ‘voluntary contribution’ service provided by the Nambawan Super. You save from your ‘after tax’ pay.
▪ Alternatively, you can utilize Section 29(1)(r) to utilized your entitlements tax-free towards the payment of your first home;
▪ Unfortunately, public servants are denied this right because the Government payroll system is not set up in a way that will assist employees to access these funds;
▪ The Government must seriously look into this matter and ensure systems and processes are properly set up to assist the hard-working public servants have access to their entitlements tax-free if they wish to invest in their first home.
Why am I telling my boring story? Because I want the system to change [if it hasn’t yet] and public servants be given the opportunity to own homes utilizing their entitlements – without paying taxes and having to go through years of challenges like I did. This is an injustice to the hard-working public servants.
Shalom & Have a Ruach-Inspired Week🙏🇵🇬❤️
