Because stamp duty is charged on documents, and because the rates for real property step up with value, there is an obvious temptation: use several documents instead of one, or use no document at all. The Stamp Duties Act (Chapter 117) anticipates both.
Splitting: section 16A
Section 16A deals with the splitting of transactions. Where two or more agreements for the sale or conveyance of separate parts of, or separate estates or interests in, property in Papua New Guinea are executed:
- pursuant to one transaction relating to the whole of the property; or
- which together evidence or give effect to what is, substantially, one transaction relating to the whole of the property,
then one of the agreements is charged with the same ad valorem duty — payable by the purchaser or the person to whom the property is agreed to be conveyed — as if it were a conveyance of the whole property for the total consideration. It is stamped accordingly, and the other agreements are not charged.
The agreements must be:
- between the same parties, or between different parties who are related persons within the meaning of section 78B; and
- executed within, or apparently within, a period of 12 months of each other,
unless the Collector of Stamp Duties is satisfied otherwise.
The practical effect: four contracts of K140,000 each for parts of one property are not four transactions at 4%. They are one transaction of K560,000, charged at 5% on the whole. Splitting does not reduce the duty — it just creates more documents to stamp and a harder conversation with the Collector.
Section 48C applies an equivalent splitting rule within Division 3A, which deals with transactions carried out otherwise than by dutiable instruments.
Instruments executed to evade duty: section 45
Section 45 is blunt. A mortgage, lease or other instrument executed in order, directly or indirectly, to avoid or evade the payment of stamp duty (or part of it) chargeable on a transfer on sale of real property is void — except where the instrument has been transferred to a third party and duly stamped as a transfer on sale of real property.
A long lease used as a substitute for a sale, or a mortgage structured to disguise a transfer, is not merely re-assessed at a higher rate. Section 45 makes the instrument void. The party who thought they had acquired an interest may find they hold a document with no legal effect at all.
Agreements to evade: section 92
Section 92 extends the same treatment to the arrangement behind the document: “A contract or agreement, oral or written, the purpose or effect of which is to avoid or evade this Act, is void.”
Two words are worth noting. Oral — an unwritten side arrangement is caught. And effect — the section does not require a proven intention to evade; an arrangement whose effect is to avoid the Act falls within it.
Doing it with no document at all: Division 3A
If duty attaches to instruments, the obvious next move is to complete a transaction without one. Division 3A (sections 48A–48F) closes that route.
- Section 48A — the transactions to which the Division applies.
- Section 48B — payment of duty on statements in the absence of a dutiable instrument. Where there is no instrument, a statement must be lodged and duty paid on it.
- Section 48C — splitting of transactions within the Division.
- Section 48D — the effect of later executing a dutiable instrument where a statement has already been duly lodged.
- Section 48E — aiding and abetting.
- Section 48F — offences relating to statements.
Section 48E deserves emphasis: liability is not confined to the parties. A person who aids and abets can be caught — which is a professional risk for anyone advising on or documenting the arrangement.
Using shares instead of land
The other classic route is to sell the company that owns the property rather than the property. The Act answers this in two ways:
- Item 16 of Schedule 1 taxes transfers of land use entitlement marketable securities on the same 2%–5% scale as real property, rather than the ordinary 1% for shares; and
- Division 10A and item 16A charge duty on the acquisition of an interest in a landholding private corporation, with section 78J defining a relevant acquisition.
See stamp duty on share transfers.
And understating the price does not work either
Duty on a conveyance is charged on value. Section 14A governs the value of property conveyed or transferred, section 15 the valuation of marketable securities, and section 20 gives the Collector the power to assess. The Collector also has power to obtain information and evidence (section 25A) and access to books (sections 24 and 25).
Use the exemptions and concessions the Act actually provides: the citizen first-home concession in item 5(a), the estate and gift exemptions in item 5 exemptions 10 and 11, the charitable and religious exemption, the trustee exemptions, and the abolished duties in Part VI. Those are deliberate reliefs, not schemes.
Sections 45 and 92 make instruments and agreements void, section 48E reaches those who assist, and section 48F creates offences. If a proposed structure is designed around the duty rather than around the commercial deal, get proper advice from a lawyer first.
Sources
- Stamp Duties Act (Chapter 117) — vLex
- Constitution of the Independent State of Papua New Guinea — PacLII
- PNG Consolidated Legislation — PacLII index
Section references are to Chapter 117 as consolidated to No 14 of 2019. No PNG judgment applying sections 16A, 45 or 92 is cited here, because none was located and verified — see how to read a PNG case.