In his Budget speech on November 1, Treasurer Patrick Pruaitch said that progressive log export tax on unprocessed old-growth logs would be introduced to capture the resource rent of varying log species.
"This progressive log export tax will enable Papua New Guinea to receive a fair share from the exploitation of old-growth logs. The tax is a deliberate policy measure. International commentators have confirmed that the volume of logs leaving our shores is not matching the benefits that should be received. The tax should encourage the establishment of downstream processing facilities and for additional spin-off economic activities," Pruaitch said.
The Forest Industries Association has criticised the increase in the log tax. The organisation's president, Tony Honey, has questioned "the logic and basis for the government announcing an effective 50% increase in the log export tax".
Honey said that export prices were currently depressed and export demand was weak. International market analysts were forecasting continued weak markets throughout 2017 "with no significant improvement until 2018-2019 and this is dependent on economic recovery and stability in China, our largest export market".
"Cutting any companies cash flow by 50% during a market depression is a recipe for disaster. Many forest industry participants are already planning for a significant scale down of operations and staff retrenchments beginning the 1st January," Honey said.
Honey said he did not believe that the tax would increase downstream processing, but rather have the opposite effect. He added that the industry was not consulted before the change was announced.
The Special Agriculture Business Lease Commission of Inquiry takes a diametrically opposed view.
The former chairman of the organisation, John Numapo, said that for too long, those involved in the logging industry and forestry sector had failed the government and the people by paying minimal tax and royalties to landowners for the export of round logs.
"The landowners in particular were big losers with not only their logs being taken away but also their customary land without adequate and appropriate compensation.
"I commend Prime Minister Peter O'Neill and his government for taking this bold step to increase the tax on log export as it is long overdue," he said.
He said the proposed new tax would ensure that both the government and the landowners get maximum returns through taxes and royalty payments from exported logs.