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Tax Cheating Rife as Papua New Guinea Becomes Top Timber Exporter, Report Says

February 16, 2016
100 Reporters

Douglas Gillison

Papua New Guinea, now the world’s largest producer of tropical timber, is losing more than $100 million annually to widespread tax evasion in its logging industry, depriving the impoverished country of needed state revenues as its forests are progressively cleared and degraded, according to a report to be released today.

The country — a cradle of biodiversity whose forests play a key role in the global climate — has surpassed exports from other major African and Asian producers of commercial, tropical timber and largely serves the Chinese market, according to a report from the Oakland Institute, a policy research organization in California.

Describing the export industry as a “great timber heist,” the report detailed a “multi-layered tragedy,” with companies stripping the south-west Pacific nation of natural resources, while denying local communities their land rights and cultural heritage. All the while, logging companies pass undeclared profits through tax havens such as the British Virgin Islands.

“What the data suggest is that there is indeed tax evasion happening on a massive scale in Papua New Guinea related to the logging activities of these firms,” said Frédéric Mousseau, a policy director at the institute and the report’s principal author.

“Here you have numbers and the numbers are speaking very, very loudly as far as we are concerned.”

Tax filings cited in the report show that 16 local subsidiaries of the Malaysian conglomerate Rimbunan Hijau Group — the largest player in the local timber sector accounting for at least one quarter of exports — have declared operating losses almost every year since 2000. As a result, most had paid no corporate income tax in 15 years, the report said.

But the supposed losses came as local exports have boomed, nearly doubling since 2009 to almost 4 million cubic meters per year, while eclipsing exports from Malaysia, which had been the world’s largest source of tropical timber for decades.

“If it were legitimately unprofitable to log and export timber from PNG, why would they continue their operations?” the report asks, using the initials by which Papua New Guinea is commonly known.

Wedged between Australia and Indonesia, about a third of Papua New Guinea’s 180,000 square miles are now under some form of commercial lease, mainly for logging, the report said.

Papua New Guinea’s Internal Revenue Commission did not respond to requests for comment and officials at its Forest Authority could not be reached.

Axel Wilhelm, manager for corporate policy at Rimbunan Hijau’s PNG offices, said the Oakland Institute had not shared its findings with his company.

“It is not possible to comment without seeing the claim,” he wrote in an email. “I can comment as a matter of principle that Rimbunan Hijau is assiduous in meeting all its legal obligations, including payment of tax.”

The report suggests that local logging companies are undervaluing exports in order to reduce corporate taxes and duty payments. In 2014, the average price of timber produced by major exporters such as Cameroon and Burma was $388 per cubic meter, almost twice the price recorded in Papua New Guinea, which was only $210 per cubic meter.