. /. RESTRICTED  WORLD TRADE  
ORGANIZATION  WT/ACC/SPEC/TON/1/Rev.1 
17 June 2003 
 (03-3227) 
Working Party on the  
Accession of Tonga Original:   
 
 
 
ACCESSION OF TONGA  
 
Initial Offer on Goods  
 
Revision  
  For the purposes of the accession of the Department of Labour, Commerce and Industries of the Kingdom of Tonga to the WTO, the Government has submitted its revised initial offer on goods for consultation by Members from the Secretariat (Accessions Division, 
Room 1126) and available in electronic format from accessions@wto.org.   
  Together with the revised offer, the Department of Labour, Commerce and Industries has submitted some comments on the ongoing tax reform in Tonga.  The comments are reproduced below.   
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  Tonga is currently in the process of implementing a series of taxation reforms.  We have received and continue to receive much technical assistance with regards to our taxation reform 
particularly from the Pacific Financial Technical Assistance Centre (PFTAC), an IMF executed 
project that is funded jointly by the IMF, ADB, AusAID and NZaid.   The current taxation system in the Kingdom of Tonga relies heavily on trade taxes, particularly those on imports.  The system is significantly affected by an extensive array of exemptions, allowance and “holes” that shift the incidence of tax to particular segments of the 
community and ensure that tax collection is inequitable and administratively inefficient.  
Further, all major taxes lack sufficient administrative powers and appropriate sanctions to provide for effective administration by the authorities.   The key elements of the “new” taxation system are as follows: 
 
- A simplified individual income tax; 
- A single low rate corporate income tax; 
- A single rate customs duty; 
- Excise duty on imports and local production of alcohol products, tobacco 
products, petroleum products and motor vehicles; and 
- A broad based consumption tax. 
  In order to develop the domestic production and service sectors, it is desirable to move the emphasis from import taxes to a domestic consumption base via the introduction of a broad based consumption tax.  This broad based consumptions tax will be known as the Tongan 
Consumption Tax (TCT).  The TCT will be a new tax but not an additional tax.  It will replace 
three narrow taxes: the sales tax, fuel sales tax and ports and services tax.  Effectively the WT/ACC/SPEC/TON/1/Rev.1 
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operation of these three taxes will cease when the TCT comes into effect.  The tentative date for the implementation of the TCT (and consequently the ceasing of sales tax, fuel sales tax and ports and services tax) is 1 April 2005.   The implementation of a single rate customs duty and the implementation of excise duty 
on imports and local production of alcohol products, tobacco products, petroleum products and 
motor vehicles is planned for the same time as the introduction of the TCT (ie 1 April 2005).  It is expected that the proposed tariff rates and excise duties should be decided before the end of October 2004.  
 Obviously these taxation reforms impact on Tonga’s offers for binding tariff rates with 
regard to World Trade Organization (WTO) accession.  However, we feel that the end result of the reforms will be a system much more aligned with the f undamental ideals underlying the 
WTO.    
 Much as we have proposed dates for implementation of our reforms, if a more successful 
implementation requires a few more months of preparation we are obviously not going to implement the reforms earlier.  Therefore, with regards to our offer to WTO Members, we feel it is prudent to commit to dates upon which reforms will be implemented no later than.     Similarly, with regard to our single rate custom duty, the exact rate is yet to be finalized.  
Therefore, we feel it is prudent to commit to a rate at which we know the duty rate will be equal 
to or less than.   Tonga is very focused on implementing the taxation reforms within the proposed timeframes, however to do so will require a huge commitment in terms of resources.  Although 
we are aware that WTO Members may have been anticipating changes to our tariff rates and 
ports and services tax at an earlier date, we feel that the outcome of the reforms will be a taxation system much more aligned to both our developmental goals and the fundamental ideals underlying the WTO.  Our focus during this period of implementation will therefore be on the taxation reforms rather than tax rate changes.  We hope that Members will understand our position and look favorably upon our offer. 
 
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