Superannuation, like most other industries, is subject to the tax laws of Papua New Guinea. Understanding when and how this tax affects your Super is important to making the right decisions for your best retirement outcome.
What gets taxed and when?
Your Employer's and Employee contribution percentages are calculated on your salary amount, but your employee contribution is deducted on the after tax. You can read more on how superannuation contributions work with your salary and wages tax on the Internal Revenue Commission (IRC)'s website, and read more on the marginal rates here.
While your Superannuation savings are with the Fund, the potential interest that can be earned and applied from the Fund's strategic investments is affected due to tax applied to the profits of its investments. While this does not directly affect your Member and Employer contributions that are with the Fund, the tax does affect the amount of crediting interest that is applied to the Member and Employer contribution balance.
Upon exiting the Fund, under Section 46B of the Income Tax Act 1959, tax is to be applied to all Member benefit payments at the time of exit. Tax is applied only on the Employer and interest component of Members' Super balances. The Member contribution component is not taxed.
How much gets taxed?
The table below provides details on how tax is applied to the Employer contributions, any interest credited when a Member exits, and how this changes with the number of years of contribution or the Member's situation:
| Years of contribution or situation | Rate of Tax applied to Employer contributions and Interest |
| Less than 5 years | Marginal rate of Tax |
| Greater than 5 years but less than 9 years | The lesser of 15% OR the marginal tax rate |
| Greater than 9 years but less than 15 years |
The lesser of 8% or the marginal tax rate |
|
Greater than 15 years, Or under the following circumstances:
|
2% tax |
In short, the more years a Member contributes, the less tax they will have to pay when they exit the Fund.
To read more on the tax rates and legislation, you can visit the IRC website.
