19 October 2017

New Taxes in East Timor as Government announces VAT and Hikes in Tobacco and Alcohol Prices

ETLJB Macau Hub reported on 18 October 2017 that the Timor-Leste Government wants to double non-oil tax revenue to US$400 million per annum with the introduction of value added tax by 2020.  In addition, it plans to increase taxes on tobacco and alcohol. The plans were announced by the East Timor Minister of Planning and Finance Rui Gomez during the second day of the Parliamentary Plenary proceedings on considerations of the new minority government's program for the pending legislative period.

The Government is headed Mr. Mari Alkatiri from the Revolutionary Front for an Independent East Timor (FRETILIN) which is facing a hostile opposition in the new Parliament following elections a few months ago.

According to the MacauHub report, Minister Gomez stated during the debate that "securing more domestic tax revenue is a critical issue for the future of Timor-Leste, and is a priority of the government.”

The Minister added that the VAT will contribute about 5.0% of GDP. Progressive rates in ares of the economy that harm public health such as the consumption of tobacco and alcohol will accompany the VAT laws. East Timor has a worrying level of tobacco consumption and the government has recently implemented a public health policy and anti-smoking laws to try to combat this social problem.

East Timor has been under pressure from the IMF of late in relation to revenues. According to a report in LUSA, the Minister was quoted as saying that the new taxation measures were "necessary to combat the informal economy, which accounts for 60 to 70% of household income, but does not contribute to state revenues."

This is an economic attack on the poor. It might make sense to irrational economists to tax everything that moves but from a social and political perspective, it does not make any sense at all. On the contrary, it is incomprehensible why the State would impose additional taxes (other than the alcohol and tobacco taxes that will contribute to public health in East Timor) on poor families, most of whom are struggling and in many cases failing to have the capacity to pay for housing, food and water, education, health and other basic necessities such as pre-natal care, elder care and other individual and family needs.

If the East Timorese informal economy is the problem, then it should be the subject of specific policies and laws not by a blanket VAT tax  on the whole community particularly if food and the other usual exemptions are not spelled out.

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