Comparative Tax Regimes in the South Pacific and Implications for Civic Organizations

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Pacific Civil Society Law Programme


Review Report

David Lidimani

© ICNL 2008
All rights reserved

Table of Content


A Exemption on Income 3
B Deduction, Relief & Rebates 6
C Public Fundraising, Licences and Permits 8
D Stamp Duty 10
E Customs and Excise 12
F Sales and Purchases 14
G Gift Duty 16
H Non-Profit Company and Profits 17


Table of Legislation 20



This report presents an overview of the tax laws in the South Pacific which
directly or indirectly affect civic or ganisations established for charitable,
educational, benevolent, religious, and other public benefit purposes. Tax
regimes of the following jurisdictions are thus the subject of this review: Cook
Islands, Fiji, Kiribati, Niue, Papua New Guinea, Samoa, Solomon Islands,
Tonga, Tuvalu, and Vanuatu.

The scope of this review focuses on income tax exemptions, tax deductions
rebates and relief to donors, stamp duty exemptions, special treatment
relating to public fundraising activities, duty payable on gifts made to civic
organisation, exemptions under customs and excise laws, privileges under
goods and services tax, and the tax treatm ent of income or profit derived from
business activities operated by or on beha lf of civic organisations. Some of the
findings in this review may not be conclusive, thus, should only be taken as
pointing to the direction or trend of legal development in the region. But in any
event, taxation laws in the region undergo ongoing overhauls and reforms to
reflect contemporary socioeconomic circumstances.


A Exemption on Income

As the standard approach, the income of organisations established for
specified purposes are statutorily exempted from income tax, and the trend in
the region is generally uniform. This is not the case however with the income
of cooperative societies registered unde r cooperative societies’ legislation to
which the approach varies from one jurisdiction to another. In other words,
the tax regimes in most South Pacific jurisdictions do not give special
treatment to the income of cooperative societies. Exceptions are however found


in Fiji, 1 Niue 2 and Solomon Islands 3 in which absolute or qualified exemption
applies to the income of such societies.

Reverting to organisations other than c ooperatives societies, variations are
however present as to the eligibility requ irements for statutory exemption. A
purposive approach is adopted in most or all reviewed legislation in defining
the types of purposes thus organisations that may qualify for enjoying tax
exemption benefit. Thus, by virtue of income tax legislation an organisation
will qualify for exemption if is estab lished for a public benefit purpose which
may fall under any of the following broad categories: benevolence,
4 religion, 5
6 sports, 7 charity; 8 culture, 9 science music art and literature, 10
relief of poverty sickness or disability
11 and distress of the public. 12 There is
however absence in all regional legisl ation of provisions requiring, as
prequalification for ta x exemption, the status of an organisation to be assessed
and certified by an independent body.

Generally, the incorporation status of an organisation 13 does not necessarily
entitle the same to automatic exemption. A purposive approach, as earlier
highlighted is adopted to determine the types of organisations and incomes
that are subject to tax exemption. This does not necessarily apply however to
statutory exemptions that clearly define s the specific bodies or organisations
1 s.16 of the Income Tax Act [Cap 201]of Fiji limits exemption to a period of 8 years 2 Exemption is absolute and permanent by virtue of s.49 of the Income Tax Ordinance 3 Exemption is absolute but subject to a society having as its principal object the development of
agricultural land
4 s.81, Income Tax Act1990 (Kiribati); Sch.1, Income Tax Act 1992 (Tuvalu); s.16, Income Tax Act [Cap
123] (Solomon Islands)
5 Kiribati, Tuvalu, and Solomon Islands. s.25, Income Tax Act 1974 (PNG); s.7, Income Tax Act 1974
(Samoa); s.17, Income Tax Act [Cap 201] (Fiji)
6 Kiribati , PNG, Samoa, Solomon Islands, and Fiji 7 Tuvalu and PNG 8 Kiribati, PNG, Samoa, Tonga, Samoa, Solomon Islands, and Niue. s.42(1)(g), Income Tax Act 1997
(Cook Is)
9 Tuvalu 10 PNG 11 Samoa and Fiji 12 Fiji 13 As referring to the statute under which an organisation is incorporated such as the Charitable Trusts


the incomes of which will be exempt from tax. 14 In this respect, some
organisations are specifically exempted in tax legislation by reference to their
registered names. In relation to general exemption provisions, the formal
approval of State authoriti es is required to grant an organisation tax exempted
status which can either be permanent
15 or for a specified period 16 and activity.
In the South Pacific, the power to grant formal approval to tax exempted
status is vested either in the Board,
17 Minister, 18 Collector, 19 Commissioner, 20
21 or His Majesty in Council. 22

Whatsoever the criteria may be for determining eligibility for income tax
exemption, the most fundamental determinant is the public benefit element of
a purpose. Not surprisingly, all Pacific jurisdictions reviewed have maintained
the traditional position as first develo ped in western legal systems. In this
connection, it is worth noting that the concept of public benefit as considered
from a cultural perspective
23 has over the years systematically given way to its
western or modern definition and unders tanding. This is manifested in the
proliferation of communit y-based organisations the membership and activities
of which are beyond traditional precinct s or limitations such as tribal or
kinship-based institutions and polities.

14 In such cases, the determinant factor is the object of an organisation as set out in its constitution upon
15 As would have been the case in PNG in which a body deemed charitable is prescribed by name in the
income tax legislation, thus, granting the same a presumably permanent tax exempted status.
16 The tenure of exemptions, whilst not defined in the relevant provisions, is normally left to be
prescribed by the Minister or Commissioner of Inland Revenue in the order granting the exemption to a
specified body. See e.g. Sc hedule to s.16 of the Income Tax Act of Solomon Islands
17 Kiribati, 18 Tuvalu, Solomon Islands, Fiji 19 Cook Islands 20 Samoa and PNG 21 Niue 22 Tonga 23 Public benefit as understood in contemporary Pacific societie s is alien to Pacific cultures of prehistoric
times when acts of generosity that benefit strangers (who, in this context are non-tribal members) are a
rarity, if at all. Thus, the scope of generosity is tr aditionally confined to tribal circles or rendered in the
course of honoring existing tr ibal or kinship alliances.


B Deduction, Relief & Rebates

Nearly all South Pacific jurisdictions do acknowledge to varying degrees the
generosity of donors and philanthropists by providing for deductions and
rebates vis-à-vis assessment of taxable incomes of the same. The approach in
Kiribati and Tuvalu is however an exception in the region as a charitable
donation does not attract any form of recognition in neither country’s tax
legislation. In those jurisdictions with tax deduction mechanisms, the scale or
rate of deduction is somewhat dictat ed by certain factors including the
relatively small size of an economy thus small revenue base for the state
through taxation. This can also be in fluenced by the willingness or otherwise
of governments to forego much need ed revenue for service delivery and
supporting burgeoning bureaucracies. With the exception of a few
24 only donations by way of gifts in cash assume greater
recognition in the law. In this connection, donations in kind have yet to be
statutorily acknowledged in most South Pacific jurisdictions.

The most important qualifying factor fo r invoking this tax benefit mechanism
is that a donation must be made to a body established for purposes of sport,
26 religion, 27 education, 28 benevolence or assisting relief operations. 29
Other statutory requirements includ e the need to produce documentary
evidence of such donations,
30 minimum cash donations, 31 and the making of
such donation by a donor within a specified period of time. The approach in
Papua New Guinea as to the latter cr iterion is unique as s.21 of the Income
Tax Act requires a gift in kind so donate d to be acquired by the donor no
earlier than ‘ 12 months immediately preceding the making of the gift’ .

24 PNG 25 PNG, Solomon Islands 26 Cook Islands, Fiji, Niue, PNG, Samoa, Tonga, Solomon Islands 27 Cook Islands, Niue, and Solomon Islands 28 Fiji and Solomon Islands 29 Solomon Islands 30 A receipt is required for cash donations made in the Cook Islands (s.70, Income Tax Act) and Niue
(s.47B, Income Tax Ordinance )
31 K50 in PNG


As a fundamental issue to this tax benefit mechanism, the rates of deduction
coupled with prescribed ceilings often di ctate the extent to which philanthropy
is promoted in any jurisdiction. But having such an objective will only need to
be balanced with the small economies of most South Pacific jurisdictions
which directly impinge on the revenue base of governments. Such influencing
factor is reflected in the rates of deduct ion prescribed in each jurisdiction. Set
out below in Table 1 is a summary of the tax deduction rates and ceilings
prescribed for each jurisdiction.

Table 1 Tax Rebate & Deduction Rates 32
Rebate or

Additional to the general provisions on tax deduction which, albeit of general
application refers nonetheless to specific bodies or trust funds,
37 special
32 All rates are quoted in local currencies 33 Income Tax (Budget Amendment) Act 2005 34 Kina is the local currency 35 Income Tax (Amendment) Act 1995 36 The country is one of the few tax havens in the South Pacific and has introduced a VAT system in
37 For instance, s.21 of the Fiji Income Tax Act makes special reference to donations being made towards
the University of the South Pacific Endowment Fu nd, Fiji Red Cross Society, St John’s Ambulance
Brigade, Fiji Crippled Children’s So ciety and the Fiji Blind Society.
Deduction Rate


Gift in Kind

Gift in Cash


Deduction in one year
Cook Islands No provision Value of gift $200 $5’000
Fiji No provision Value of gift Not specified 100’000 33
Kiribati No provision No provision. —- —–
Niue No provision 20¢ in every $1 Not specified $100
Papua New Guinea Value of gift Value of gift K50 34 Unlimited
Samoa No provision No provision Not specified $104
Solomon Islands No provision Value of gift Not specified $5’000 35
Tonga No provision Value of gift Not specified $750
Tuvalu No provision No provision —– —–
Vanuatu 36 Not applicable


amendments which are ad hoc were introduced as part of national fundraising
drives towards specific events. Notable examples are the amendments in Fiji
and Samoa
39 geared towards procuring financial support from donors towards
the 2003 and 2007 South Pacific Games respectively. Relatively higher rates of
deduction were prescribed to attract co rporate sponsorship of the prestigious
Pacific event. It is worth highlighting that such event-specific amendments
normally incorporate multiple factors and criteria which include minimum
cash donations, timelines, recipient au thorities, and specified trust accounts
into which payment must be made. Table 2 below provides a summary of the
substance of the amendments in Fiji and Samoa.

Table 2 Special Amendment Deduction Rates in Fiji and Samoa

Country Timeline Beneficiary Minim. Gift Deduction Rate

Made between
1 Jan. 1998
and 31 Dec.

South Pacific Games
Infrastructure Fund

1.5X amount of
cash donation


Made between
1 Jan. 2002
and 31 Dec.

SPG Infrastruc. Fund,
2003 SPG Organising
Committee, SPG
Organising Comm. Ltd

Not specified

2X amount of
cash donation


Paid bef. a date
determined by
Notice by the
CEO of the
Min. of Finance

South Pacific Games
Authority via such
account as approved
by the CEO Ministry of


2X amount of
cash donation

C Public Fundraising, Licenses & Permits

Financially sustaining the operations of charitable or public benefit
organisations requires a legal regime that recognises thereby providing a
flexible environment for such bodies to en gage in or be beneficiaries of public
fundraising activities. Two common approa ches are characteristic of legislation
38 Income Tax (Budget Amendment) Act 2002 39 Income Tax (South Pacific Games Donations) Amendment Act 2003


in the region that fall under this sub-head. The first approach provides special
treatment to the organisation undertak ing a regulated fundraising activity.
Such treatment is normally accorded on basis of the charitable or public
benefit status of the organisation. The privileges and special treatments
prescribed under this approach vary from one jurisdiction to another and may
be in the form of exemption from certa in statutory requirements, waiver of
permit or license fees, or being the recipient of a special permit to engage in
what is otherwise a restricted or monopolised activity. The second approach
shifts focus to the proceeds of a regulate d or licensed activity such as a lottery.
By operation of this approach, the determinant factor is whether proceeds of
the activity will be applied for certa in public benefit purposes such as
education, sports or charity. Thus, the status of the fundraiser is immaterial
as it can either be a private business or profit-oriented establishment. Benefits
prescribed under this approach includ e exemption remission or waiver of
permit fees,
40 exemption from distribution of ga ming proceeds, or the issuance
of a special permit to engage in what is otherwise a restricted or monopolised
trade or activity.

Further, adopting a purposive approach in defining the purposes that will
qualify an organisation for the prescribed benefits and privileges, the following
categories are statutorily reco gnised in the region: charity,
41 education, 42
43 culture, 44 sport, 45 philanthropy, 46 or any public purpose. 47

40 Such as the fee payable for a special permit to sell liquor or the exhibition of films 41 s.5 Gaming Act, s.72 Liquor (Licensing) Act (PNG); s.27 National Lotteries Act, s.16 Gaming Act, s.10
Film Control Act (Samoa); s.5 Dances Act (Tonga); s.15 Gaming & Lotteries Act , ss.4 and 9
Cinematograph Act (Solomon Islands); s.4 Films & Public Entertainment Act (Niue); s.7 Films &
Censorship Act (Cook Islands); s.4 Cinematographic Films Act (Fiji)
42 Papua New Guinea, Samoa, Cook Islands, Niue, Solomon Islands, Fiji 43 ibid 44 Papua New Guinea, Samoa, Solomon Islands, 45 Fiji, Cook Islands, Niue, Solomon Islands, Papua New Guinea, Samoa 46 Samoa, Cook Islands, Niue, Fiji 47 Fiji, Solomon Islands, Cook Islands, Niue, Samoa


D Stamp Duty

Tax in the form of stamp duty is an inalienable component of the whole tax
regime of most, if not, all South Pacific jurisdictions. Whilst revenue is an
underlying rationale of this tax approach, causes for charitable or public
benefit purposes were nonetheless given recognition by the State by way of
statutory and ministerial or discretionary exemptions. Stamp duty exemption
is thus approached in general from tw o sources in the region: (i) exemptions
provided under special or general enabling legislation
48 and (ii) exemptions
provided in stamp duties legislation
49 by way of reference to exempted
categories of bodies or transactions. As to the first source, the scope or range
is relatively narrow and limited to a fe w specified instruments such as those
executed for or on behalf of a register ed society. A notable example is the
exemption provided to societies registered under the Cooperative Societies
50 and Incorporated Societies Act 51 of certain jurisdictions . The second
category is broader in scope and adopts a more purposive approach in
defining the purposes and types of in struments and transactions that may
entitle an organisation to exemption.

The regional legislative approach towa rds cooperative societies is uniform as
registered societies may enjoy special privilege either through statutory
exemption or the use of discretionary power to exempt remit or waive stamp
duty by the Minister, Controller or Commi ssioner of stamp duty, or Head of
52 Note however that such exemption applies principally to instruments
executed for or on behalf of a cooperative society in relation to the business of
such society. Furthermore, stamp duty exemption is similarly prescribed for
48 See for e.g. s.58 of the Cooperative Societies Ordinance of Kiribati 49 Most or all jurisdictions reviewed do have a Stamp Duties Act. 50 r.54, (Cook Islands); s.55, (Samoa); s.60, (Tonga); s.56, (Vanuatu); s.49, (Solomon Islands); s.58,
(Tuvalu); s.58, (Kiribati); s.157, (Papua New Guinea)
51 s.38, Cook Islands; s.34, Sa moa; s.35, Tonga; s.35, Niue 52 Samoa, Tonga, PNG, Kiribati, Solomon Islands, Cook Islands and Tuvalu


bodies registered under the Incorporated Societies Act, 53 Charitable Trust Act 54
and the Savings and Loans Societies Act
55 of certain Pacific jurisdictions.

The principal source of stamp duty exemption is found in the Stamp Duties
legislation of all South Pacific jurisdicti ons. In any such statute, the approach
is twofold as it focuses on (i) spec ified types of bodies and (ii) specific
instruments and transactions. In terms of (i), bodies established for the
following purposes are, subject to sub-item (ii) , recognized as qualified for
exemption: religion,
56 philanthropy, 57 charity, 58 community service, 59 and
60 As the other determinant, exemption may be enjoyed by bodies
established for the above purposes if they are beneficiaries of or parties to the
following instruments and transactions: cheques orders or drafts,
conveyance or transfer of real property,
62 deed of gift of property, 63 deeds of
64 transfer or assignment of leases, 65 receipts given for donation to
charitable institutions,
66 and instrument for declaring or defining the trust or
for appointing new trustees in respect of such property.
67 Whilst all stamp
duties legislation of the jurisdictions revi ewed provides with clarity the types of
CSOs and instruments or transactions to which exemption waiver or
remission will apply, the approach in the Stamp Duties Act of Samoa is
ambiguous as the Act is rather silent on this vital issue.

53 Samoa, Tonga, Cook Islands and Niue 54 Tonga 55 PNG 56 s.5 Stamp Duties Act (PNG); s.3 Stamp Duties Act (Tonga); s.3 Stamp Duties Act (Solomon Islands);
s.3 Stamp Duties Act (Fiji)
57 PNG 58 PNG, Tonga, Solomon Islands, Fiji; s.4 Stamp Duties Act (Vanuatu); s.59 Stamp Duties Act (Cook
59 PNG 60 Solomon Islands and Fiji 61 Sched.1 Stamp Duties Act (PNG) 62 PNG; s.59 Stamp Duties Act (Cook Islands); Schedule to Stamp Duties Act (Solomon Islands) 63 PNG 64 PNG 65 PNG 66 Tonga 67 Solomon Islands


E Customs & Excise

As import-based economies, customs laws undoubtedly ranked highly within
the tax regime affecting civic organisations in any South Pacific jurisdiction.
However, the extent to which customs laws manifestly recognise the role of
civic organisations is an issue that is addressed with great diversity
throughout the region. To comprehend this point, one only needs to draw
comparison between the regional approaches to income tax and customs duty
respectively. There is appreciable unif ormity in terms of the former whilst
otherwise for the latter.

In a nutshell, both statutory (manda tory) and discretionary (ministerial)
exemptions are characteristic of the legi slative approach in the region. But of
both approaches, the use of discretiona ry exemptions is predominant in a
majority of jurisdictions reviewed.
68 And as manifestation of this predominant
discretionary approach , most jurisdictions have shied away from expressly
providing for statutory exemptions specifi cally applying to civic organisations
of such descriptions and with such pu rposes. The consequence therefore is
that civic organisations established for charitable or public benefit purposes
are by implication subjected to the same regime applying to private sector
organisations and other profit-making bodies. Kiribati, Vanuatu, and to some
extent, Fiji, are exceptions as, in pres cribing exempted classes of imports or
goods, specific reference is made to imports or exports made for purposes
including religion, education, char ity, sport, community services, and

Employment of the discretionary approa ch entails applications for exemption
being considered on a case by case basis.
70 In all South Pacific jurisdictions,
the power to exercise discretion in th e consideration of applications for
68 Jurisdictions falling within this category include the Cook Islands, Fiji, Papua New Guinea, Samoa,
Solomon Islands, Tuvalu, and Tonga
69 s.4 Customs Act (Kiribati); s.10 Customs Tariff Act (Fiji); sched.3 Import Duties (Consolidation) Act
70 No blanket exemption is prescribed as such are normally one-offs.

exemption is vested in the Minister, 71 President, 72 Cabinet, 73 Head of State, 74
or a special committee.
75 Whilst the procedures and guidelines for
consideration of applications are prescribed in statute for certain
76 the rest adopt a system whereby the exercise of discretion is
guided, if at all, by arbitrary or ad hoc procedures and policy guidelines. A
classic illustration of a jurisdiction with a statutorily prescr ibed procedure is
Solomon Islands by virtue of the Customs & Excise (Amendment) Act 2002
which establishes a stringent exemptions regime. Novel mechanisms of the
amendment include:
(i) a requirement for a memorandum of understanding to be concluded
between the Government and applicant as prerequisite for an
exemption application;
(ii) the transfer of functions formerly vested in the Minister to a special
exemptions committee;
(iii) Minister to endorse decision of the committee unless he or she
decides otherwise on basis of one prescribed factor.
The transfer of the substantive d ecision-making process from a single
authority (Minister) to a body of persons (committee) by way of legislation is a
commendable initiative which as yet is not widely practiced in the region.
Without doubt, the strength of the approach in Solomon Islands lies in the
argument that the Minister’s power and discretion to grant exemptions is
systematically controlled and regulated. This in effect prevents arbitrariness
and the abuse of power by those in authority. Moreover, the exercise of
discretion by the Minister is subject to one paramount consideration which is
71 Customs Tariff Act (Fiji), Customs Tariff Act (Samoa), Customs & Excise Act (Solomon Islands),
Imports Levy (Special Fund) Act (Tuvalu), Import Duties (Consolidation) Act (Vanuatu)
72 Customs Act (Kiribati) 73 Customs Tariff Act (Cook Islands) 74 Customs Duty (Rebate) Act and Customs Tariff Act (Papua New Guinea) 75 Customs & Excise (Amendment) Act (Solomon Islands) 76 Such as Solomon Islands and to some extent, Fiji 77 The Committee comprised representatives of the Departments of National Planning, Commerce,
Customs and Inland Revenue, as well as the Chamber of Commerce and the Central Bank of Solomon
Islands. Where necessary, a representative from the department regulating the export or import
commodity will also be invited on an ad hoc basis.
78 By virtue of s.8(7) of the Act, endorsement of the Minister may only be withheld if the exemption is
not in the best interest of the country’s economy.

statutorily prescribed in two other jurisdictions 79 besides Solomon Islands.
Thus, the decision of a minister to gr ant or refuse an exemption must take
into account the economic and devel opment interest of the country
80 as well
as the extent to which it will contribute, if at all, an identifiable benefit to the

F Sales & Purchases

The preliminary issue is whether the tax regime of the jurisdictions reviewed
provides special treatment to civic organisations vis-a-vis purchases or sales of
goods and services domestically. In other words, are civic organisations
exempted from tax payable on the supply of goods and ser vices domestically?
Whilst the retail price of goods and services normally incorporate a type of tax
referred to as GST
82 or VAT, 83 there are certain jurisdictions which exempt
public benefit organisations from paying this tax. What is then paid is the
normal price less the imposed tax.

In general, not all South Pacific juri sdictions have legislative provisions
catering for this special tax benefit. And with the absence of any such
legislation, the position of certain jurisdictions
84 is uncertain. The notable
exception however is the bigger jurisdictions in the region, viz. Fiji, Papua New
Guinea, Samoa, Solomon Islands and Vanuatu, all of which have GST or VAT
85 As is conventional, qualificatio n for exemption under this regime
of tax is not arbitrary but based on the recognised status of an organisation or
the purposes for which it is established. The Goods & Services Tax Act of
Papua New Guinea provides for instance th at a zero rate will apply to goods
and services supplied to or by a non-profit body being a religious charity or
79 Fiji and Vanuatu 80 sched.3 Import Duties (Consolidation) Act (Vanuatu); s.8 Customs & Excise Act (Solomon Islands) 81 s.10 Customs Tariff Act (Fiji) 82 Goods and Services Tax 83 Value Added Tax 84 Such as the Cook Islands, Kiribati, Tuvalu, Niue and Nauru 85 Value Added Tax Decree 1991( Fiji),Goods & Services Tax Act 2003 ( PNG), Value Added Goods&
Services Tax Act 1992/93 ( Samoa), Goods Tax Act 1993 and Sales Tax Act 1990 ( Solomon Islands),
Value Added Tax Act 1998 (Vanuatu)


community organisation. 86 The Value Added Tax Decree of Fiji similarly
exempts from tax the supply by a non-profit body of donated goods and
87 Moreover, the Solomon Islands’ Goods Tax Act exempts from goods
tax equipment and material used by a religious, charitable, benevolent,
educational or sporting institution.
88 The Value Added Goods & Services Tax
Act of Samoa makes reference only to the supply of donated goods by a non-
profit body, the latter being defined as

any society, association, or organisation , whether incorporated or not which is
carried on other than for the purposes of profit or gain to any proprietor,
member, or shareholder and which is, by the terms of its memorandum,
articles of association, rules or other document constituting or governing the
activities of the society, association, or organisation, prohibited from making
any distribution whether by way of money, property, or otherwise howsoever,
to any such proprietor, member, or shareholder.

No ministerial or discretionary exem ption is exercised under the above
legislation as the exemptions are stat utory and determined primarily by the
status and purpose of an organisation, or the nature of the goods and services
supplied. The only piece of legislation that takes a discretionary approach,
whilst similarly shying away from making any reference to non-profit bodies,
is the Sales Tax Act of Solomon Islands. The only general provision that may
be invoked by a non-profit body seeking exemption is s.6 of the Act which
empowers the Minister to determine by notice ‘ any persons entitled to relief
from sales tax…subject to any conditions the Minister may impose’ . ‘Person’ is
defined in the Interpretation & General Provisions Act 1978 as also including
bodies corporate.

86 s.21 87 para.4, Sched.2 88 s.37 89 s.2 90 The same definition is adopted in s.2 of the Goods & Services Tax Act of PNG 91 s.16


G Gift Duty

This section looks briefly at the tax regime governing gifts by way of
dispositions of property in favour of charitable or public benefit organisations.
Of the jurisdictions reviewed, only two (2) have statutes dealing with the
payment of duty on property disposed of by way of gift, viz. Fiji and Samoa.
For purposes of comprehension, it woul d be worthwhile gaining insight into
what is meant by ‘gift’ being the subject of this tax regime. Section 2 of the
Estate & Gift Duties Act of Fiji defines the term as meaning ‘ any disposition of
property which is made otherwise than by will, whether with or without an
instrument in writing, without full adequate consideration in money or money’s
’. If gift is in essence property, inference can then be drawn from the
definitions of ‘personal’ and ‘real’ property in the Act that property being the
subject of duty payable under the Act includes both real and personal
property. What then is the statutory position relating to property being gifted
to public benefit or charitable bodies?

The legislative approach in both Fiji an d Samoa is unequivocal as s.63(a) for
instance of the Estate & Gift Duties Act (Samoa) stipulates that no duty will be
payable on any ‘ gift creating a charitable trust, or establishing any society or
institution exclusively for charitable purposes, or any gift in aid of any such
trust, society or institution .’ Similarly, s.37(a) of the Estate & Gift Duties Act of
Fiji exempts from gift duty
‘any gift to any institution, organization or body of
persons, whether corporate or unincorporated, operating for charitable purposes
in Fiji and not formed or carried on for the profit of any individuals, such gift
being for use within Fiji’ . These are statutory exemptions determined primarily
on basis of the charitable status and purpose of a recipient organisation.

92 Estate & Gift Duties Act 1966 (Fiji), Estate & Gift Duties Act 1978 (Samoa)


H Non-Profit Company & Profits

Whilst charitable or public benefit organisations in the region are at liberty to
have business interest, the crucial issue however is the extent to which the
profit gained from any such interest is treated at law. The fundamental
question therefore is whether the profit gained from the business interest of a
charitable or public benefit organisation is exempt from tax. To be so treated,
the logical construction would be that such profit or gain must be treated in
law as constituting an integral part of the income of such organisation.
Determining this issue entails revisiting the income tax legislation of South
Pacific jurisdictions.

With the exception of the Cook Islands, Fiji, PNG and Samoa, the income tax
legislation of all other jurisdictions is ra ther silent or ambiguous on this issue.
In other words, there is total absence of reference or definition of the income of
charitable or public benefit organisati ons as comprising for instance various
sources or components including that de rived from the business interest of
any such organisation. Of the above four (4) jurisdictions, the Income Tax
legislation of both Samoa and Cook Island contains the most clear-cut
provisions which unequivocally exempts from tax the

income derived directly or indirectly from any business carried on by or on
behalf of or for the benefit of trust ees in trust for charitable purposes…or
derived directly or indirectly from any bu siness carried on by or on behalf of or
for the benefit of any society or instit ution established exclusively for such

The Income Tax Act of Fiji adopts a similar approach albeit stated in negative
language in the proviso to s.17(5) of the Act. Thus, the profits or gains from a
business which constitutes the income of a charitable or public benefit
organisation will not be exempt from tax ‘ unless such profits or gains are
applied solely for…the relief of poverty or distress of the public, or for the
93 s.7(1)(h) Income Tax Act 1974 (Samoa); s.42(1)(h) Income Tax Act 1997 (Cook Islands)


advancement of religion or education’. 94 In spite of the absence of words that
draw an explicit link between the business and organisation, the provision
when given a liberal construction would lean in favour of a conclusion that
supports such a link.

Further, the Income Tax Act of PNG is structured in such a manner that
provides separate treatment to the income of non-profit companies from that
of charitable or public benefit organisations. This it does by, first, shying away
from drawing any special or intrinsic link between non-profit companies and
charities per se, and second, subjecting the income of both groups to two
distinct exemption regimes. As to the first point, the Act does not define the
income of a charitable body as comp rising profits or gains made from a
business operated by or on behalf of such body as a non-profit company. The
second point deserves more elaboration as , whilst the income of charitable or
public benefit organisations enjoy full exemption, this is otherwise for the
income of a non-profit company. Thus, ‘[w]here the taxable income of a non-
profit company does not exceed K6,000, the maximum amount of tax payable is
50% of the amount by which taxable income exceeds K4,000’ .
95 This provision
demonstrates an approach that treats no n-profit companies as more or less
near-equals of profit making enterprises.


Tax regimes in the South Pacific cannot be described as grossly inadequate,
let alone, irrelevant. For such would be an understatement that disregards the
realities on the ground dictated princi pally by small economies or markets,
and, for most small jurisdictions, a relatively small tax base for purposes of
state revenue. And in countries in which governments are often the sole
providers of essential services, having in place tax regimes that greatly reduce
or undermine the revenue raising capacity of governments may not be
desirable as yet. The bottom line therefore is that current tax regimes are
reasonably adequate. But yet again this is not to say that they are problem-
94 s.17(5) 95 s.16


free. Improvements are needed on various fronts, a few of which are
generalised below.

First, there is need to breed or culture philanthropy in the region through
manifestly attractive tax incentives. Wi th the exception of Fiji and Papua New
Guinea, current tax regimes of most othe r jurisdictions failed to promote this
goal at least at a progressive level. With the resource and financial capacity of
civic organisations being strengthened through a vibrant philanthropic
movement, there is every potential for governments to be relieved of the
burden of providing certain basic service s. In other words, given the right
framework for cooperation and partne rship between governments and civic
organisations, most services can be prov ided by well-resourced organisations.
The key point therefore is that philanthr opic culture needed to boost the work
of civic organisations in the region ha s to be promoted by operation of a
country’s tax regime. Current approaches unfortunately fall short of providing
the right incentives for achieving this purpose. Supplementary to this issue,
and as evidently highlighted in Table 1, is that of the non-recognition of gifts in
kind in all reviewed jurisdictions but PN G. Future law reform initiatives must
therefore take into account and appreciate donations in kind as just as
valuable as gifts of money. And from the perspective of certain potential
donors such as business houses, this option is more preferable.

Secondly, most decision-making process es required under the tax regime of
most, if not, all South Pacific jurisdicti ons are underpinned by the exercise of
discretion. In simple, ministerial or discretionary exemptions are more
common than statutory exemptions. Whils t not so much of a problem on face
value, this approach nonetheless becomes an issue notably when legislation
falls short of prescribing guidelines and safeguards for the exercise of
discretion in relation to ministerial ex emptions. Such an approach provides
room for arbitrariness and potential abuse of power, thus, needs to be
prevented through clear guidelines or cr iteria prescribed in the statutory
provision granting the power.


Finally, the financial sustainability of civic organisations needs tax regimes
that provide special treatment to the business interest of such organisations.
Only Cook Islands, Fiji, PNG and Samo a currently give recognition to this
important area by exempting to variou s degrees the income and profit of non-
profit companies and businesses opera ted by or on behalf of civic
organisations. If profit derived fr om the business interest of a civic
organisation provides a vital source for financing and sustaining the public
benefit causes of such organisation, tax laws of all other jurisdictions should
accordingly provide recognition of commen surate value to this significant area.


Table of Legislation

Cook Islands
Cooperative Societies Regulations
Customs Tariff Act
Income Tax Act 1997
Films & Censorship Act
Stamp Duties Act

Cinematographic Films Act
Estate & Gift Duties Act 1966
Cooperative Societies Act
Customs Tariff Act
Income Tax Act [Cap 201] Income Tax (Budget Amendment) Act 2005
Income Tax (Budget Amendment) Act 2002
Stamp Duties Act
Value Added Tax Decree 1991


Cooperative Societies Ordinance
Customs Act
Import Levy (Special Fund) Ordinance
Income Tax Act1990

Papua New Guinea
Income Tax Act 1959
Cooperative Societies Act
Customs Tariff Act
Customs Duty (Rebate) Act
Gaming Act
Goods & Services Tax Act 2003
Liquor (Licensing) Act
Stamp Duties Act

Income Tax Ordinance 1961
Customs Tariff Act 1982
Films & Public Entertainment Act

Solomon Islands
Income Tax Act [Cap 123] Cooperative Societies Act
Customs & Excise Act
Customs & Excise (Amendment) Act 2002
Income Tax (Amendment) Act 1995
Gaming & Lotteries Act
Goods Tax Act 1993
Sales Tax Act 1990
Cinematograph Act
Stamp Duties Act


Income Tax Act 1974
Cooperative Societies Ordinance
Customs Tariff Act
Estate & Gift Duties Act 1966
Income Tax (South Pacific Games Donations) Amendment Act 2003
National Lotteries Act
Gaming Act
Stamp Duties Ordinance
Film Control Act
Value Added Goods& Services Tax Act 1992/93

Income Tax Act [Cap 68] Customs & Excise Act
Dances Act
Raffles Act
Stamp Duties Act
Cooperative Societies Act

Income Tax Act 1992
Cinemas & Films Ordinance
Import Levy (Special Fund) Act
Sales Tax Ordinance

Cooperative Societies Act
Customs Act
Gambling Control Act
Gambling Prohibition Act
Import Duties (Consolidation) Act


Stamp Duties Act
Value Added Tax Act 1998