Papua New Guinea, now the world’s largest producer of tropical timber, is losing more than $100 million annually to widespread tax evasion in its logging industry, depriving the impoverished country of needed state revenues as its forests are progressively cleared and degraded, according to a report to be released today.
The country — a cradle of biodiversity whose forests play a key role in the global climate — has surpassed exports from other major African and Asian producers of commercial, tropical timber and largely serves the Chinese market, according to a report from the Oakland Institute, a policy research organization in California.
Describing the export industry as a “great timber heist,” the report detailed a “multi-layered tragedy,” with companies stripping the south-west Pacific nation of natural resources, while denying local communities their land rights and cultural heritage. All the while, logging companies pass undeclared profits through tax havens such as the British Virgin Islands.
“What the data suggest is that there is indeed tax evasion happening on a massive scale in Papua New Guinea related to the logging activities of these firms,” said Frédéric Mousseau, a policy director at the institute and the report’s principal author.
“Here you have numbers and the numbers are speaking very, very loudly as far as we are concerned.”
Tax filings cited in the report show that 16 local subsidiaries of the Malaysian conglomerate Rimbunan Hijau Group — the largest player in the local timber sector accounting for at least one quarter of exports — have declared operating losses almost every year since 2000. As a result, most had paid no corporate income tax in 15 years, the report said.
But the supposed losses came as local exports have boomed, nearly doubling since 2009 to almost 4 million cubic meters per year, while eclipsing exports from Malaysia, which had been the world’s largest source of tropical timber for decades.
“If it were legitimately unprofitable to log and export timber from PNG, why would they continue their operations?” the report asks, using the initials by which Papua New Guinea is commonly known.
Wedged between Australia and Indonesia, about a third of Papua New Guinea’s 180,000 square miles are now under some form of commercial lease, mainly for logging, the report said.
Papua New Guinea’s Internal Revenue Commission did not respond to requests for comment and officials at its Forest Authority could not be reached.
Axel Wilhelm, manager for corporate policy at Rimbunan Hijau’s PNG offices, said the Oakland Institute had not shared its findings with his company.
“It is not possible to comment without seeing the claim,” he wrote in an email. “I can comment as a matter of principle that Rimbunan Hijau is assiduous in meeting all its legal obligations, including payment of tax.”
The report suggests that local logging companies are undervaluing exports in order to reduce corporate taxes and duty payments. In 2014, the average price of timber produced by major exporters such as Cameroon and Burma was $388 per cubic meter, almost twice the price recorded in Papua New Guinea, which was only $210 per cubic meter.
Taken together, the underpayment of corporate tax and export duties could represent more than $100 million a year, the report said.
With a population of eight million, Papua New Guinea is among the poorer countries in the world. Life expectancy is under 63 years and the infant mortality rate high at 47.3 for every 1,000 live births, according to the United Nations.
PNG also plays a crucial role in the global climate, according to researchers from the Petersburg Nuclear Physics Institute in Russia, and deforestation there may disturb maritime weather patterns in the Southeast Asia-Pacific region, which help regulate global temperatures.
According to Mousseau, principal author of the report, commonly exported tree species include local tropical hardwood varieties such as Pometia pinnata, known locally as “Taun,” which is similar to mahogany. It approaches 150 feet in height is often used in flooring.
About 90 percent of exports go to China for manufacturing, he said.
“American consumers might be buying furniture in the U.S. with wood from PNG made in China,” said Mousseau.
Recently published research from the Remote Sensing Center at the University of Papua New Guinea concluded that between 2002 and 2014 the country lost more than 4,400 square miles of forest cover to logging or clearance, with forest disappearing at an annual rate of 0.49 percent by 2014.
“It’s not sustainable. I’ll tell you that much,” said Allen Allison, a senior zoologist at the University of Hawaii at Manoa and an expert on biodiversity in Papua New Guinea.
The hardest-hit areas are in the heavily logged island provinces off the northeast coast while mainland Papua New Guinea has suffered less, said Allison, who was not associated with the Oakland Institute report.
The 14,000-square-mile island of New Britain — the largest in the Bismarck Archipelago at about the size of Taiwan — was once virtually blanketed with forest. But by 2012 only 30 percent remained after decades of heavy logging and commercial agriculture, Allison has written. More than 90 percent of the remainder has been allocated in logging concessions.
Allison also said Papua New Guinea contained about 5 percent of all the world’s biodiversity — an extremely high share given that it is only about the size of California. While the entire United States are known to contain about 600 species of reptile and amphibian, for example, Papua New Guinea alone contains about twice as many.
Allison said the timber industry may be turning to Papua New Guinea — with its dense, treacherous terrain and complex forests — having exhausted more easily accessible forests elsewhere in the region.
Seeing what is left of forests elsewhere in Southeast Asia can be shocking, he added.
“You fly over Borneo and…my God,” he said.
Photos from top: A logging truck heads through the village of Vanimo, Papua New Guinea, en route to the Vanimo Forest Products log camp where the logs will be loaded onto a ship for export to China. (Photo by Pete Souza/Chicago Tribune/MCT via Getty Images); Satellite images published in the most recent “State of the Forests” report from the University of Papua New Guinea show the proliferation of logging roads over a decade in the Wawoi Guavi logging concession in Western Province.