The Great Timber Heist: How Foreign Logging Companies Evade Taxes

Source: Oakland Institute

A new report released today, The Great Timber Heist: The Logging Industry in Papua New Guinea, exposes massive tax evasion and financial misreporting by foreign logging companies, allegedly resulting in nonpayment of hundreds of millions of dollars in taxes.

Papua New Guinea (PNG) is home to the world’s third largest rainforest. After the lease of 5.5 million hectares of land in recent years through the Special Agriculture and Business Lease scheme, today over 15 million hectares–more than one third of the country–are in the hands of foreign firms. With land and vital natural resources taken away from traditional owners, PNG has become the world’s largest exporter of tropical wood. Timber companies argue that logging is an important source of tax income needed for country’s development. The new exposé, The Great Timber Heist, based on field research and analysis of hundreds of financial documents and tax records of the logging companies, details how the use of dubious mechanisms allows them to evade taxes.

“Despite decades of operations in PNG, logging companies barely declare any profit. The official tax filings of many firms report losses year after year. Any other business would have shut down by now. So why are they still in business if they don’t make profits?” said Frederic Mousseau, author of the report. “Through transfer pricing -underpricing exports and overpricing expenses, the logging industry is able to evade paying hundreds of millions of dollars in taxes–vitally needed revenue for the country,” he continued.

The Great Timber Heist examines specifically 16 subsidiary members of the largest logging firm in PNG– Malaysian multinational Rimbunan Hijau Group. These companies, working mostly at a loss, have accumulated over $30 million of tax credit in just seven years. This will allow them not to pay income tax any time in the years to come.

In 2011, the PNG government launched a Commission of Inquiry into land leases, which found widespread fraud, corruption, and lack of proper consultations with the local communities. Despite these findings, no action has been taken to cancel leases and return land to the traditional owners.

“The belief that logging will translate into development for the country is devastating for the people and the environment in PNG. We hope our research will help the policy makers see how the logging companies are pulling wool over their eyes and prompt them to take urgent action to end the harmful practices of the industry,” continued Mousseau.

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