News Release

Tonga Now Government of Tonga Nukualofa, Tonga June 18, 2007

Today the Tongan Parliament passed the Income Tax Bill into law bringing major improvements to Tonga’s income tax laws. This completes the hugely successful revenue reform programme started five years ago by the Minister of Finance, Hon Siosiua T.T. ‘Utoikamanu.

The new Act has several purposes:

First, the Act implements a number of policy changes to income tax and include the simplification and rationalisation of income tax rates and personal deductions and the treatment of wage withholding as a final tax for many employees.

Secondly, the Act modernises the income tax including more detailed provisions relating to the taxation of international transactions have been included reflecting the increased importance of international transactions in the global economy.

Thirdly, the Act simplifies the structure and drafting of the income tax law. There is significant clarification of the amounts that are subject to tax or allowed as a deduction.

Finally, the Act includes measures to prevent the avoidance of tax which has been a major problem in the past.

Tax is the price we pay for a civilised society. Tax is the money that people and businesses pay the Government. The Revenue Services Department collects income tax, consumption tax and other Kingdom taxes on behalf of the Government. Taxes that are paid to the Government are used to provide services to the community such as health, education, defense, roads and welfare.

It is the community’s tax system so if we as a society are to publicly fund roads, schools hospitals and defense, then the community makes a contribution to that, in accordance with the law, through taxation.

The Move To Self-Assessment

Income tax reform, led by the Minister of Finance, Hon Siosiua T.T. ‘Utoikamanu, is the third and final part of the Government’s revenue reform programme that began with the Revenue Services Administration Act of 2002 and the Consumption Tax which began on 1 April 2005.

The income tax changes are designed to give taxpayers greater equity and fairness, increased certainty and simplicity. The changes also place a greater responsibility on the taxpayer to assess their own tax debt or refund. Presently, taxpayers lodge an income tax return containing information from which the Inland Revenue prepares an assessment of the taxpayer's chargeable income and tax payable. The assessment is made by making any necessary adjustments to the taxpayer's calculation of chargeable income. A notice of assessment is issued indicating the tax refund or the amount payable and due date for payment. If tax has not been paid by this date a penalty will be imposed.

Under the new changes, the Revenue Services Department will move from processing forms and assessing them to providing services to taxpayers to help them understand the application of the new law to their circumstances, such as written private rulings and forms and schedules and booklets that helps them assess any tax owing or refund due themselves.

What It Means For Individual Taxpayers

For those taxpayers whose only income is employment income or interest income or employment and interest income, there will be no need to lodge tax returns.

The returns will no longer be individually assessed prior to an assessment issuing. Returns will generally be accepted at face value. Enhanced post assessment audit processes will be introduced. The amount of information required with returns will be reduced. Taxpayers will be required however to keep records for a period of at least 5 years.

What It Means For Companies

Full self-assessment will mean that company returns will be accepted at face value and any tax due will be payable on or before the due date for lodgment of the return.

Again enhanced post assessment audit processes will be introduced and the amount of information required with returns will be substantially reduced. Although a schedule of assets and liabilities and balance sheet will be required along with income and expenses and some other information like have you made a trading stock election.

Tonga Now, formerly operated by the Government of Tonga’s Reform Information Office, is currently operated by Kalia Media Serivces, which provides media responses and information about Tonga from the Government.

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