Consumption tax arrives in the dark on April 1 [1]
Thursday, March 3, 2005 - 17:29. Updated on Saturday, March 14, 2015 - 10:32.
FROM OUR ARCHIVES
EDITOR'S COMMENT
By Pesi Fonua
The timing of the rushed introduction of the new Tonga Consumption Tax or TCT, makes one wonder if government had deliberately chosen April 1 to give the parliamentary candidates and the public something to chew on while they work themselves up to a voting mood on March 17.
The 15% TCT will automatically increase our cost of living - goods which in the past had a 5% sales tax will now have 15% TCT, while services will go up by 15% - such as electricity, water, you name it - when the clock strikes midnight on March 31.
No one is exempt from paying the TCT on purchases, except for the Palace Office, although it is possible that the Minister of Finance might mention a few more exemptions when he officially comments on the tax Friday evening. But at the moment even exports are not exempt from the Tax.
The decision to introduce a broad based, but a limited domestic TCT to replace the Port and Service Tax and Sales Tax was first outlined by the Minister of Finance, Hon. Siosiua 'Utoikamanu when he launched his Economic and Public Sector Reform Program in April 2002.
He said then that the current tax system was significantly affected by many exemptions, allowances and holes, which meant that only some segments of the community bear the tax burden, and that a new tax system was aimed at spreading tax burden as widely and fairly as possible.
Since April 2002 everyone has been waiting for the tax reform, in anticipation that it would help to lift us out of our economic misery. Well, it suddenly arrived on January 31, this year, when the Hon. Siosiua 'Utoikamanu launched the Tonga Consumption Tax and declared that it would come into effect in two months time on April 1.
This is despite the fact that a reform to the Custom Duty Act and the Income Tax Act has not been completed, and a regulation for the TCT has not been passed by the House.
The Consumption Tax is complex and not easy for everyone to understand. For example, registered businesses must charge 15% on sales but can claim 15% tax back on purchases. Businesses that are not registered do not charge 15% on sales but cannot claim tax credits. While everyone pays the 15% on imports. Businesses that don't register might have to pay 5% sales tax on all of their existing stock at March 31.
In other countries such as Australia it took at least two years to educate the community on how the tax works, but in Tonga we have only two months. There is no good explanation for the rushed introduction of the TCT, at a time when the Tongan economy is in a depression. One explanation for such a move could be because of pressure from the Asian Development Bank who funded the reform with a loan of $10 million.
But despite the fact that Government has thrown this controversial tax in the air at a time when candidates are looking for something to get their teeth into, there is only a mild reaction from a few candidates. Perhaps the candidates are as much in the dark about the implications of the TCT as everyone else? The government's line that it's "working together for a better and fairer tax system in Tonga" could have been a red flag to tempt a committed Representative of the People to find out what it was all about.
But while voters are being wooed with issues from Shoreline Power to Chinese traders, complaints about the depressed economy and drugs, crime and unemployment - the one issue that will hit us all in the pocket the TCT, has not become a serious election issue - at least, not yet.