Consumption Tax Overview
What is Consumption Tax?
Consumption Tax (CT) is a tax on spending levied on the supply of most goods and services in Tonga at the rate of 15% with effect from 1st April 2005. Consumption Tax Act 2003 requires most businesses involved in taxable activities in Tonga to:
-
Register for CT with MORC within 7 days of becoming liable
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Charge and collect 15% CT applicable to the range of goods and services they supply.
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Lodge their CT returns and pay the CT collected to the MORC when due.
In the case of imports, all importers (regardless of whether the importer is registered for CT or not) will pay CT when the goods arrive in Tonga and before they are released by the Customs Authorities to the importer.
In the case of wholesalers and manufacturers, if you are CT registered business CT is charged when the goods are sold to retailers or consumers. Retailers will charge CT on all goods sold and services provided to final consumers.
CT on imports
CT is payable on all goods imported into Tonga. Customs will collect the CT at the time of importation along with any Customs and Excise duties and other charges.
Example
|
|
(Pa’anga) |
|
Cost of imported goods |
$1,000.00 |
|
PLUS: Insurance and freight |
$200.00 |
|
Value for customs duty |
$1,200.00 |
|
PLUS: Customs duty ($1200.00 x 10%) |
$120.00 |
|
PLUS: Other charge - quarantine |
$50.00 |
|
Total value on which CT will be levied |
$1,370.00 |
|
CT Payable ($1370 x 15%) |
$205.50 |
CT on goods and services
Businesses that are registered for CT must include, or add, 15% CT in the price of goods or services that they sell to their customers. They can also claim a credit for the CT included in the cost of most goods and services purchased or imported for use in their business (refer Sec17 CT Act 2003).
Businesses that are not registered for CT cannot claim an input tax credit for any CT included in the price of any goods or services purchased or imported for use in their business.
How is my CT liability calculated?
The amount of CT payable for a CT period is the difference between the total output tax charged on taxable sales of goods and services and the total input tax credits allowable.
Output Tax - all CT that is charged to, or collected from customers
Input Tax - all CT paid on purchases (include CT on imports)
Total Output Tax -Total Input Tax Credits = CT Payable
If your input tax credits are greater than the output tax charged for the period, the credit balance will generally be carried forward, or in some special cases, refunded.
Claims not allowed:
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suppliers not registered for CT or already registered but effective at a later date.
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electricity
-
insurance
-
water bill (only first 20 cubic meters allows)
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entertainment (eg food, beverages, tobacco) and
personal use of vehicle (unless there's log book recording all business use of vehicle).
