The National Executive Council has instructed the National Fishing Authority (NFA) and its board to implement these changes, Kina Securities reports.
In the last decade the subsidy has grown to more than $100 million (K330 million) each year. The government projects the new rebate system will save $70 million (K235 million) in revenue in 2018.
But the PNG Fishing Industries Association (FIA) has maintained its position that the rebate scheme will not attract new foreign fishing companies to invest in onshore processing in PNG.
FIA president Sylvester Pokajam said six PNG-based foreign investors were talking about closing down their processing facilities if they cannot continue to get subsidised fishing for their associated fleets to take fish offshore.
"The canneries in PNG traditionally slow down during this time of year for four to six weeks for staff holidays and annual refits, normally resuming production before February," Pokajam said.
"At that time it will be clear whether the companies choose to stop production. The new policy dictates that all purse seiners, whether domestic or foreign flag, will pay full Vessel Day Scheme (VDS) prices, but if they land their catch and process it in PNG, the processing side of the same corporation will receive $400 per tonne as incentive to process fish locally."
Pokajam went on to say that the state agreements only provide for fishing opportunity up to what is processed in PNG. Currently only 20% of PNG's catch is processed in the associated PNG plants, the rest, including the state's subsidy, goes offshore to Asia and competes directly with PNG.
Prime Minister Peter O'Neill recently said there would be no more discounted fishing licenses offered in the country's archipelagic waters, but rather rewards would go to PNG based processors who meet state agreements and process in PNG.