Commencement: 1st January 1977
1st July 1977

LAWS OF TONGA
[1988 Ed.]
CHAPTER 68

INCOME TAX

ARRANGEMENT OF SECTIONS

Section

1. Short Title.

PART I - INTERPRETATION

2. Interpretation.

PART II - INCOME TAX

3. Income Tax imposed.
4. Items included in assessable income.
5. No deductions unless expressly provided.
6. Expenditure or loss incurred in production of assessable income.
7. Increased exports of goods incentive.
8. Tourist promotion incentive.
9. Export performance incentive for qualifying tourist services.
10. Certain deductions not permitted.
11. Incomes wholly exempt from tax.
12. Income credited in account or otherwise dealt with.
13. Adjustment for incorrect accounting practice in previous years.
14. Appointment of income received in anticipation.
15. Valuation of trading stock.
16. Place of residence, how determined.
17. Liability for assessment of income derived from the Kingdom and abroad.
18. Classes of income deemed to be derived from the Kingdom.
19. Apportionment when income derived partly in the Kingdom and partly elsewhere.
20. Absentee defined.
21. Liability of principal not affected.
22. Provision applying to agents.
23. Recovery of tax paid on behalf of another person.
24. Agents of absentees and non-residents.
25. Agents of non-residents carrying on business in the Kingdom.
26. Non-resident trader or agent to give security.
27. Rates of tax for individuals.
28. General exemption. Dependent child exemption. Dependent parent exemption.
29. Special exemption in respect of gifts of money and payments of school fees.
30. Retirement fund exemption.
31. Special exemption in respect of life insurance premiums.
32. House exemption.
33. Fixed assets exemption.
34. Assessment of non-resident insurance companies.
35. Assessment of non-resident shipping and airline companies.
36. Export oriented companies.
37. Credits in respect of foreign tax.
38. Tax avoidance arrangements void.

PART III - RETURNS AND ASSESSMENTS

39. Annual returns.
40. Special returns and assessments.
41. Commissioner to make assessments.
42. Commissioner not bound by returns.
43. Continuing liability.
44. Validity of assessment.
45. Assessments deemed correct except in proceedings on objection.

PART IV - REFUNDS AND RELIEF FROM TAX

46. Refunds of excess tax.
47. Power of Commissioner in respect of small amounts.
48. Relief from tax.

PART V - TAX DEDUCTIONS BY EMPLOYERS FROM PAYMENT
OF SALARY OR WAGES

49. Application of this Part.
50. Tax deductions to be made by employers.
51. When salary or wages deemed to accrue and to be paid or received.
52. Payment to be made by employee where tax deduction exceeds payment of salary or wages.
53. Making of tax deduction from payments of salary and wages to non-residents.
54. Amounts of tax deductions.
55. Application of tax codes.
56. Dependants for purposes of tax codes.
57. Power of Commissioner to grant relief from or vary amount of deductions and to specify and vary requirements under this part.
58. Records to be kept by employer.
59. Payment of tax deductions to Commissioner.
60. Requirement to register.
61. Employee to pay deductions to Commissioner.
62. Tax deductions to be credited against tax assessed.
63. Tax deduction where no certificate available.
64. Amounts deducted to be held in trust for Crown.
65. Employers failing to take tax deductions.
66. Unpaid tax deductions etc to constitute a charge on employer's property.
67. Agreement not to make tax deduction to be void.
68. Amount of tax deductions deemed to be received by employee.
69. Application of Act to tax deductions.

PART VI - WITHHOLDING TAX

70. Liability for tax on withholding income.
71. Deduction of withholding tax.
72. Payment of deductions of withholding tax to Commissioner.
73. Statement to be delivered to Commissioner.
74. Withholding tax to be final in certain cases.
75. Annual tax on withholding income in certain cases.
76. Remedies of Commissioner.

PART VII - OBJECTIONS TO ASSESSMENTS

77. Objections to assessments.
78. Court of Review.
79. Date of sittings of Court of Review.
80. Powers of Court of Review.
81. Ex-parte action.
82. Appeal to Supreme Court.
83. Proceedings generally.

PART VIII.-RECOVERY OF TAX

84. Taxes a debt to the Crown.
85. Deduction of tax from payment due to defaulters.
86. Recovery of tax paid by one person on behalf of another.

PART IX.-PENALTIES AND OFFENCES

87. Offences under this Act.
88. Limitation of time.

PART X.-GENERAL

89. Power to require information.
90. Penalty for failure to provide information etc.
91. Regulations.

PART XI.-ADMINISTRATION
92. Appointment of Commissioner of Inland Revenue.
93. Appointment of Deputy Commissioner and subordinate staff.
94. Secrecy.
95. Oath of office.
96. Powers of Commissioner.
97. Duties of Auditor.

PART XII.-MISCELLANEOUS

98. Transitional provisions.
99. Application to petroleum operations.
100. Repeals and savings.

FIRST SCHEDULE

Part A - Basic Rates of tax.
Part B - Dependants Allowances.

SECOND SCHEDULE - FORMS

-----------------------------------------------------

CHAPTER 68

INCOME TAX

Acts Nos. 17 of 1976, 28 of 1977, 4 of 1978, 9 of 1978,
16 of 1980, 4 of 1983, 3 of 1984, 4 of 1984, 9 of 1984,
5 of 1985, 4 of 1986, 3 of 1987, 3 of 1988.

AN ACT TO REPEAL THE INCOME TAX ACT AND TO PROVIDE FOR COLLECTION OF TAX ON MOST INCOMES AT SOURCE.

Short Title

1. (1) This Act may be cited as The Income Tax Act.

(2) Except as otherwise provided herein, this Act shall come into force - 

(a) on the 1st day of January 1977 in relation to companies;

(b) on the 1st day of July 1977 in relation to all other taxpayers -

and shall apply with respect to the tax on income derived in the fiscal year commencing on the 1st day of July 1977 and in every subsequent year.

PART I - INTERPRETATION

Interpretation

2. In this Act and in any regulations made hereunder, unless the context otherwise requires - 

"agent" includes every person who in the Kingdom for and on behalf of any person or company, whether in or outside the Kingdom, holds or has the control, receipt or disposal of any money belonging to such person; and every person declared by the Commissioner to be an agent under this Act and includes sub-agents and any companies acting as agents;

"airline company" means any company which transports persons or freight or both by air for profit or gain;

"assessable income" means income of any kind which is not exempted from tax otherwise than by way of a special exemption authorised as such by this Act;

"business" includes any profession, trade, manufacture or undertaking carried on for pecuniary profit;

"calendar year" means a year commencing on the 1st day of January and ending with the 31st day of December;

"chargeable income" means the residue of assessable income after deducting the amount of all special exemptions to which the taxpayer is entitled;

"charitable purposes" includes every charitable purpose, whether it relates to relief of poverty, the advancement of education or religion, or any matter beneficial to the community; (Inserted by Act 4 of 1983.)

"Commissioner" means the Commissioner of Inland Revenue or any person authorised by His Majesty in Council to act in his stead;

"company" means any corporate body whether registered under the Companies Act or not, and any partnership consisting of more than 7 partners;

"dependent child" means in relation to a taxpayer, any child whose total income does not exceed T$100 (exclusive of any income from scholarship) per annum and who -

(a) is under the age of 18 years and is dependent upon the taxpayer for support; or

(b) is over the age of 18 years but under the age of 25 years and is receiving full time instruction at any university, college, school or other educational establishment, or is serving under articles or indentures with a view to qualifying in a trade or profession, and is dependent upon the taxpayer for support; or

(c) is over the age of 18 years and is dependent upon the taxpayer for support on account of physical or mental incapacity;

"dependent parent" means in relation to a taxpayer, a father or mother whose total income does not exceed T$200 per annum; (Inserted by Act 4 of 1986.)

"export oriented company" means any company whose total production is exported, and designated by His Majesty in Council to be an export oriented company; (Inserted by Act 5 of 1985.)

"fiscal year" means a period of 12 months ending with the 30th day of June in any year:

Provided that, in relation to every company a fiscal year means the period of 12 months ending with the date of the annual balance of its accounts;

"gross", in relation to an amount, means without any deduction whatsoever from that amount;

"income from employment" means salary or wages;

"income tax" means income tax imposed by this Act;

"Kingdom" means the Kingdom of Tonga;

"lease" means any disposition whatever by which a leasehold estate is created; and includes a sublease;

"net", in relation to an amount, means the amount resulting after all deductions whatsoever have been made from that amount;

"non-resident" means a person who is not deemed to be a resident in the Kingdom under this Act;

"non-resident agent" means an agent within the meaning of this Act who, being in the Kingdom, has no fixed and permanent place of business or abode therein;

"non-resident trader" means any person who being in the Kingdom, carries on business there without having any fixed and permanent place of business or abode therein;

"paid", in relation to source deduction payments, means source deduction payments that have been paid or accrued or received or that are receivable in cash otherwise and includes all source deduction payments not actually paid but distributed, transferred or credited to or applied on account of any person entitled thereto or dealt with in the interest of or on behalf of a person; and "pay" and "payment" have corresponding meanings;

"partnership" means an association of persons carrying on business as partners or in receipt of income jointly; but does not include a registered company;

"pay period", in relation to any employee receiving regular payments of salary or wages, means the period for which such payment is made or payable;

"person" means any individual or person, and includes any syndicate, trust, association or other body, and any body corporate, and heirs, executors, administrators or other legal representatives of such persons;

"reduced deduction" means any deduction to be made from any payment of salary or wages to an employee by an employer to whom any tax code declaration has been delivered by or on behalf of that employee;

"resident" means a person who is deemed to be a resident in the Kingdom under this Act;

"salary or wages", in relation to any person, means salary, wages, or allowances, bonuses, gratuities, extra salary, overtime pay, commission, or remuneration of any kind, whether received or receivable and whether in cash or otherwise, in respect of or in relation to the employment or past employment of that person; and includes the value (as estimated by the Commissioner) of any quarters, board, residence or benefits of any kind, in respect of or in relation to the employment or the past employment of that person;

"shipping company" means any company which transports persons or freight or both by sea for profit or gain;

"source deduction payment" means a payment by way of salary or wages or a withholding payment;

"statutory body" means a body that has been created by statute; (Inserted by Act 16 of 1980.)

"superannuation fund" means a superannuation fund or a fidelity guarantee fund approved by His Majesty's Cabinet;

"tax" means income tax imposed by this Act;

"tax deduction" means a tax deduction made or required to be made under Part V of this Act;

"taxpayer" means any person paying, liable to pay, or believed by the Commissioner to be liable to pay tax imposed by this Act;

"withholding payment" means a payment of any of the kinds specified in Section 70 of this Act.

PART II - INCOME TAX

Total Income and Deductions

Income Tax imposed

3. (1) Subject to this Act, there shall be levied and paid for the fiscal year commencing the 1st day of July in each year an income tax.

(2) Subject to this Act, tax shall be payable by every person on all income derived by him during the year for which the tax is payable.

(3) Income tax shall be assessed and levied on the chargeable income of every taxpayer at such rate or rates as are fixed by the First Schedule to this Act.

Items included in assessable income

4. Without in any way limiting the meaning of the term, the assessable income of any person shall for the purposes of this Act, except as otherwise provided herein, be deemed to include - 

(a) all profits or gains derived from any business (including any increase in the value and stock in hand at the time of the transfer or sale of the business or on the reconstruction of any company);

(b) all salary and wages;

(c) all profits or gains derived from the sale or other disposition of any real or personal property or any interest therein if the business of the taxpayer comprises dealing in such property, or if the property was acquired for the purpose or intention, or for purposes or intentions including the purpose or intention, of selling or otherwise disposing of it, and all profits or gains derived from the carrying on of any undertaking or scheme entered into or devised for the purpose of making a profit;

(d) all rents, fines, premiums, or other revenue (including payment for or in respect of the good-will of any business, or the benefit of any statutory licence or privilege) derived by the owner lessor or lessee of land from any lease, licence, or easement affecting the land, or from any grant of any right of taking the profits thereof, or from the grant or transfer of any lease;

(e) all royalties or other like payments dependent upon production from or the use of any real or personal property, whether or not they are instalments of the purchase price of any property;

(f) all payments for the supply in connection with the carrying on of a business of scientific, technical, industrial or commercial knowledge, information, or assistance, not being payments which the Commissioner is satisfied constitute wholly reimbursement of expenditure that is - 

(i) of a kind that is deductible under this Act; and

(ii) is incurred, in relation to the payments, by the persons to whom the payments are made;

(g) all interest, dividends, annuities and pensions (other than pensions of any of the kinds referred to in Section 11 of this Act);

(h) income derived from any other source whatsoever.

No deductions unless expressly provided.

5. Except as expressly provided in this Act no deduction shall be made in respect of any expenditure or loss of any kind for the purpose of calculating the total income of any taxpayer.

Expenditure or loss incurred in production of assessable income.

6. (1) In calculating the assessable income of any taxpayer any expenditure or loss to the extent to which it is necessarily incurred in carrying on a business for the purpose of gaining or producing the assessable income for any fiscal year may, except as otherwise provided in this Act, be deducted from the gross assessable income derived by the taxpayer in the fiscal year in which the expenditure or loss is incurred.

(2) Without limiting the generality of subsection (1), the Commissioner may, in calculating the assessable income of any taxpayer in any fiscal year, allow a deduction in respect of -

(a) depreciation or improvements, or both, of such amount as, subject to the general instructions of His Majesty in Council, he considers reasonable;

(b) any sum paid in that fiscal year by an employer by way of contribution to a superannuation fund:

Provided that, where any such contribution by an employer is not an ordinary annual contribution it shall be treated as an expense incurred in the fiscal year in which the sum is paid or as an expense to be spread over a number of fiscal years as the Commissioner may, in his discretion, direct.

Increased exports of goods incentive

7. (1) For the purpose of this section - 

"base period", in relation to an income year, means the period comprising the 3 income years immediately preceding that income year;

"consideration receivable", in relation to a sale or other disposal of goods, means - 

(a) In the case of a sale or disposal other than one to which paragraph (b) of this definition applies, the amount or value of the consideration for the sale or disposal;

(b) Where the sale or disposal is part of, or is connected with, a transaction in which any other assets, or any services, are sold, disposed of, or supplied, such part of the amount or value of the consideration or considerations as the Commissioner is satisfied is attributable to the sale or disposal of the goods,

reduced by any amounts paid or payable (otherwise than as an agent) by the person selling or disposing of the goods, by way of freight for carriage of the goods outside Tonga or by way of insurance or other outgoings in relation to the goods attributable to events or contingencies occurring or arising, or services performed, after the placing of the goods, upon a ship or aircraft for export from Tonga;

"export goods" means goods exported from Tonga by a taxpayer who is the manufacturer, producer, or processor of the goods or who is an export merchant, being goods - 

(a) Which were sold or otherwise disposed of by the taxpayer to an overseas purchaser; or to the Commodities Board for export; and

(b) Of which the taxpayer was the owner at the time of the sale or disposal; and

(c) Which are not non-qualifying goods; and

(d) In respect of which, in the case of goods exported by an export merchant, the export merchant has entered into a contract (otherwise than through the agency of the manufacturer, producer, or processor of those goods) with an overseas purchaser for the sale or other disposal of those goods, under which contract the export merchant is required to export those goods to or to the order of that purchaser, and is responsible to that purchaser for the quantity and quality of those goods, and is entitled to receive from that purchaser the consideration for the sale or other disposal of those goods; and

(e) For which foreign currency has been remitted to the taxpayer through the Bank of Tonga in accordance with the Foreign Exchange Control Regulations;

"export merchant" means a person not being the Commodities Board who, in the opinion of the Commissioner, is - 

(a) Carrying on, as a business, the activity of exporting goods (not being goods manufactured, produced, or processed by him) from Tonga; and

(b) As part of that business, actively engaged in seeking opportunities or creating or increasing a demand for the export of goods from Tonga;

"increase in export sales for the income year", in relation to a taxpayer and an income year, means any excess of the value of export sales of that taxpayer for that income year over one-third of the value of export sales for the base period of that taxpayer;

"non-qualifying goods", in relation to export goods, means - 

(a) Goods exported by way of gift;

(b) Goods taken or sent out of Tonga with the intention that they will at some later time be brought or sent back to Tonga;

(c) Goods which are sold by retail to persons departing from Tonga;

(ca) Goods (being food, tobacco, cigars and cigarettes) taken on board any ship or aircraft in Tonga for the consumption or use aboard that ship or aircraft by any person or with the intention that those goods will not be unshipped in any country or territory outside Tonga;

(d) Goods imported into Tonga and subsequently exported from Tonga in the same form without processing, packing, grading, or sorting thereof in Tonga;

(e) Goods imported into Tonga and subsequently exported from Tonga after being processed, packed, graded, or sorted in Tonga or incorporated with another product in Tonga, if the consideration receivable for the sale or disposal of the goods so exported exceeds the cost of all imported goods included in the goods so exported (such cost being the landed cost of these imported goods, exclusive of Tonga customs duty, at the time when they were imported into Tonga) by less than 35 per cent;

(f) Any other goods (including qualifying scheduled goods) specified by His Majesty in Council, but nothing in the Order in Council shall apply in relation to any taxpayer until the end of the income year in which export sales are made by that taxpayer of those other goods specified in the Order in Council, being goods which have been sold or otherwise disposed of before the date the Order in Council comes into force or in respect of which firm orders, both as to price and quantity, have been placed and accepted on or before that date, - 

But does not include qualifying scheduled goods, other than qualifying scheduled goods, in respect of which an Order in Council has been made under paragraph (f) of this definition;

"qualifying scheduled goods", in relation to non-qualifying goods, means - 

(a) Any goods not referred to in of any of the paragraphs (a) to (f) of the definition of the term "non-qualifying goods";

(b) Any other goods which His Majesty in Council may from time to time add to and specify the extent to which those goods are excluded from the operation of the said paragraphs (a) to (f) being goods - 

(i) Which he is satisfied incorporate a significant degree of local processing or manufacture; or

(ii) Which he considers desirable to add, having regard to the economics of further local processing or manufacture, the non-traditional nature of the exporting of those goods, the prospects for the steady development of an export market on a profitable basis, the efficiency of the arrangements for orderly marketing, and the effect of the exports of those goods on the supply and price of like goods in Tonga and the structure of the local industry;

"value of export sales", in relation to a period, means, in relation to a taxpayer, the amounts of consideration receivable by that taxpayer in respect of the sale or other disposal of export goods that have been sold or otherwise disposed of by him during that period.

(2) For the purposes of this section, where a taxpayer has received or is entitled to receive an amount under a policy of insurance or otherwise in respect of loss, destruction, or damage that has occurred, after their export from Tonga, in respect of export goods owned by him, - 

(a) In the case of loss or destruction, the taxpayer shall be deemed to have sold those goods, at the time of the loss or destruction, for a consideration equal to that amount;

(b) In the case of damage - 

(i) If the taxpayer has sold or disposed of the goods for a consideration shall be deemed to be increased by that amount;

(ii) If the taxpayer ceased to be the owner of the goods in any other manner, he shall be deemed to have sold the goods, at the time when he so ceased, for a consideration equal to that amount.

(3) For the purposes of this section, where - 

(a) During the base period a taxpayer acquired, whether by purchase or otherwise, an existing business, the value of export sales of the taxpayer for the base period shall, in relation to a claim for a deduction under this section in respect of an income year, be increased by an amount or amounts equal to so much of the value of export sales for the base period of each other person who owned the business at any time during the base period as is attributable to the business;

(b) During an income year in respect of which a deduction may be claimed under this section, a taxpayer acquired, whether by purchase or otherwise, an existing business, the value of export sales of that taxpayer for the base period shall in relation to a claim for deduction under this section by that taxpayer for respect of that income year, be increased by an amount or amounts arrived at by - 

(i) Determining, in respect of each person who owned the business at any time during the base period, the part of the value of exports sales of that person for base period that is attributable to the business; and

(ii) Ascertaining, in respect of each amount determined under subparagraph (i) of this paragraph, the amount that bears the same proportion to that amount as the number of days from that date of the acquisition to the end of that income year bears to the number of days in the whole of that income year:

Provided that the Commissioner may, where he considers it appropriate in the circumstances of the particular case, make such other apportionment in respect of each amount determined under subparagraph (i) of this paragraph as he considered fair and reasonable;

(c) During the base period or during an income year in respect of which a deduction may be claimed under this section, any person (in this paragraph referred to as the vendor) has disposed of a business to another person (in this paragraph referred to as the purchaser), the value of export sales of the vendor for the base period shall, in relation to a claim for a deduction under this section by the vendor in respect of any income year, be reduced by any amount, or the sum of any amounts, that would, by reason of the disposal, be required under the preceding provisions of this subsection to be added to the value of export sales of the purchaser for the base period in relation to any claim for a deduction under this section by the purchaser in respect of that income year.

(4) For the purposes of subsection (3) of this section - 

(a) Every references in that subsection to the value of export sales of a taxpayer shall be deemed to be a reference to the value of export sales of that taxpayer apart from any reduction under subsection (12) of this section;

(b) Every reference in the said subsection (3) to a business shall be deemed to include a reference to a part of a business and to any exporting activity or part of any exporting activity of any business or part of a business;

(c) Every reference in the said subsection (3) to the acquisition, ownership, or disposition of a business shall be deemed to include a reference to, as the case may be, the taking over, carrying on, or relinquishing of, an exporting activity or part of an exporting activity;

(d) Every reference in the said subsection (3) to a vendor or purchaser in relation to a business shall be deemed to include a reference to a person who relinquished or, as the case may be, took over an exporting activity or part of an exporting activity.

(5) Subject to this section, where, in relation to any income year (being any income year ending on or before the termination date) and to a taxpayer carrying on in Tonga any business or businesses in which goods are sold or otherwise disposed of - 

(a) There is an increase in export sales for the income year, or

(b) There are export sales for the income year and an increase in export sales for the income year immediately preceding that income year, - 

a deduction shall be allowed under this section in calculating the assessable income derived by the taxpayer in the income year from that business or, as the case may be those businesses, of the greater of the following amounts - 

(a) An amount equal to 25 per cent of any increase in export sales for that income year;

(b) An amount calculated in accordance with the following formula:

x x z
y

Where -

x is an amount equal to the value of the export sales during the income years; and

y is an amount equal to the value of the export sales during the income year immediately preceding that income year, and

z is an amount equal to 25 per cent of the increase in export sales for the income year immediately preceding that income year.

(6) Subject to this section and notwithstanding anything in subsection (5) of this section, where, in relation to an income year ending on or before the terminating date and to a taxpayer carrying on in Tonga any business or businesses in which goods have been sold or otherwise disposed of any other goods have been added to the definition of the term "non-qualifying goods" by an Order in Council made under paragraph (f) of that definition and there were export sales of those other goods before the date that the Order in Council came into force or of those other goods in respect of which firm orders, both as to price and quantity, were placed and accepted before that date, and -

(a) There is an increase in export sales for the income year of those other goods, being an increase calculated in respect of the export sales of those goods for the base period of the taxpayer; or

(b) There is an increase in export sales for the income year of goods (excluding those other goods), being an increase calculated in respect of the export sales of those goods (excluding those other goods) for the base period of the taxpayer; or

(c) There are export sales for the income year and an increase in export sales for the income year immediately preceding that income year,

a deduction shall be allowed under this section in calculating the assessable income derived by the taxpayer in the income year from that business or, as the case may be, those businesses, of the greater of the following amounts:

(d) An amount equal to the sum of - 

(i) An amount equal to 25 per cent of any increase in export sales for that income year of those other goods; and

(ii) An amount equal to 25 per cent of any increase in export sales for that income year of goods (including those other goods);

(e) An amount calculated in accordance with the following formula:

x x z
y 

Where - 

x is an amount equal to the value of the export sales during the income year; and

y is an amount equal to the value of the export sales during the income year immediately preceding that income year; and z is an amount equal to 25 per cent of the increase in export sales for the income year immediately preceding that income year

z is the amount equal to 25 per cent of the increase in export sales for the income year immediately preceding that income year.

(7) For the purposes of this section - 

(a) Where during any income year any other goods become non-qualifying goods, the export sales for the base period of any taxpayer shall be adjusted to exclude those other goods for the purpose of calculating any increase in export sales for any subsequent income year;

(b) Where during any income year any other goods cease to be non-qualifying goods, the export sales for the base period of any taxpayer shall be adjusted to include those other goods for the purpose of calculating any increase in export sales for that income year and for any subsequent income year.

(8) Where the Commissioner is satisfied that arrangements have been made between a taxpayer and another person with a view to the affairs of the taxpayer and of that other person being so arranged or conducted that this section would, but for this subsection, have effect more favourably in relation to that taxpayer than would otherwise have been the case, the amount of any deduction to which the taxpayer is entitled shall not exceed the amount of the deduction to which the taxpayer would, in the opinion of the Commissioner, have been entitled if those arrangements had not been made.

(9) Where - 

(a) During an income year in respect of which a taxpayer claims a deduction under this section, the taxpayer exports goods of any class or classes; and

(b) During the base period in relation to that income year another person has exported export goods (being goods that were produced or manufactured by the taxpayer or had previously been trading stock of the taxpayer) which were of a class or classes the same as or similar to the class or classes of export goods referred to in paragraph (a) of this subsection,

the amount of the deduction to which the taxpayer is entitled under this section in respect of that income year shall not (except to the extent to which, in the opinion of the Commissioner, the taxpayer would be under an unfair disadvantage for the purposes of this section) exceed the amount of the deduction to which he would, in the opinion of the Commissioner, have been entitled if the taxpayer himself had exported during that base period the export goods which that other person exported during that base period.

(10) Subject to subsection (11) of this section, if, in relation to a claim by a taxpayer for a deduction under this section in respect of an income year, the Commissioner is not satisfied, upon consideration of the information furnished or otherwise available to him, as to the value of export sales for the base period of that taxpayer in relation to that claim, the Commissioner shall not be required to determine that value, and the taxpayer shall not be entitled to a deduction in respect of that income year.

(11) Where, in a case to which subsection (10) of this section would otherwise apply, the Commissioner is satisfied that the value of export sales of the taxpayer for the base period does not exceed a particular amount, but is not satisfied that value is less than that amount, shall be taken to be the value of export sales for the base period in relation to the claim for the deduction under this section.

(12) Where a taxpayer makes application in writing to the Commissioner within the time within which he is required to furnish a return of his income for an income year, or within such further time as the Commissioner, in this discretion, may allow in any case, for a reduction of the amount or amounts that would otherwise be the value of export sales for the base period in respect of that taxpayer for the purposes of a deduction under this section in respect of that income year on the ground that, by reason of abnormal trading conditions or other extraordinary circumstances during the base period, the value of export sales for the base period as ascertained in accordance with the preceding provisions of this section is greater than it would otherwise have been and he is, by reason of that fact, under an unfair disadvantage for the purposes of this section, the Commissioner may, for the purposes of this section, make such adjustment in respect of the value of export sales for the base period as he thinks fit.

(13) Every reference in this section to an income year shall, where the taxpayer furnishes a return of income under section 39 of this Act for an accounting year ending with an annual balance date other than the 30th day of June be deemed to be a reference to the accounting year corresponding with that income year, and in every such case, this section shall, with any necessary modifications, apply accordingly.

(14) For the purposes of this section, all amounts shall be ascertained in terms of Tonga currency.

(15) Notwithstanding anything in this Act, this section shall not apply with respect to export goods manufactured, produced, or processed by any business which involves the chartering or use of a foreign owned fishing vessel, whether the goods are exported by the manufacturer, producer, or processor of those goods or by any other person.
(Inserted by Act 3 of 1984.)

Tourist promotion incentive

8. (1) For the purposes of this section - 

"associated company", in relation to a taxpayer, means a company that is, at any time during the income year, a company - 

(a) The operations of which are controlled, or are able to be controlled, either directly or indirectly, by that taxpayer; or

(b) Which controls, or is able to control, either directly or indirectly, the operations of that taxpayer; or

(c) The operations of which are controlled, or are able to be controlled, either directly or indirectly, by a person who controls or is able to control, or by persons who control or are able to control, either directly or indirectly, the operations of that taxpayer;

"permanent employee", in relation to a taxpayer, means a person who - 

(a) Is a full-time employee of the taxpayer; and

(b) By reason of his experience and service with the taxpayer and any other relevant matters, is, in the opinion of the Commissioner, fit and qualified to undertake the duties in relation to tourist promotion assigned to him by the taxpayer.

"prescribed agent", in relation to a taxpayer, means - 

(a) In the case of a taxpayer not being a company or an unincorporated body, the taxpayer himself;

(b) In the case of taxpayer being a company, a director thereof;

(c) In the case of a taxpayer being an unincorporated body, a member of the governing body thereof;

(d) In any case, an employee of the taxpayer;

"prescribed outgoings", means outgoings incurred by a taxpayer by way of - 

(a) Expenses of fares, accommodation and sustenance (other than entertainment expenses) in respect of travel in respect of or in relation to a visit from Tonga to countries or territories outside Tonga by the taxpayer or by a person (including a director or a member of the governing body where the taxpayer is a company or an unincorporated body or a director of an associated company) who is ordinarily employed in Tonga by either the taxpayer or by an associated company; or

(b) Salary or wages or other remuneration (excluding directors fees) paid or payable, for a period of a visit from Tonga to countries or territories outside Tonga, to a person (including a director or a member of the governing body where the taxpayer is a company or an unincorporated body, or a director of an associated company) who is ordinarily employed in Tonga by either the taxpayer or an associated company; or

(c) Payments (excluding commissions on sales) to an agent who is in business in Tonga to the extent that the payments are in respect of the agent undertaking travel in respect of or in relation to a visit from Tonga to countries or territories outside Tonga; or

(d) Expenses outside Tonga (including salary or wages or other remuneration but excluding directors fees) other than entertainment expenses, of a person (excluding a director or a member of the governing body where the taxpayer is a company or an unincorporated body, or a director of an associated company) who is ordinarily employed outside Tonga by the taxpayer or an associated company; or

(e) Payments (excluding commissions on sales) for the purpose of activities carried on outside Tonga by an agent who is in business outside Tonga; or

(f) Expenses (including those incurred in Tonga) of advertising outside Tonga; or

(g) Expenses incurred as an exhibitor within Tonga or elsewhere at such travel marts held wholly or principally for the purpose of attracting tourists to Tonga from countries or territories outside Tonga;

"relative", in relation to any person, means any of the following:

(a) Any parent, grandparent, brother, sister, uncle, aunt, nephew, niece, or lineal descendant of that person or of his or her spouse;

(b) The spouse of that person or of any other person specified in paragraph (a) of this definition;

"tourist-promotion expenditure", means prescribed outgoings incurred primarily and principally for the purpose of attracting tourists to Tonga from countries or territories outside Tonga but does not include so much of any outgoings incurred by a person as - 

(i) Has been, or is to be, paid or reimbursed to him by another person; or

(ii) Is incurred in or in connection with services or doing any thing for which he has been, or is to be, paid (otherwise than by way of commission) by another person.

(2) Subject to this section, where a taxpayer has in relation to any income year incurred any tourist promotion expenditure that, if it were not for subsection (6) of this section, would be allowable as a deduction in calculating the assessable income derived by that taxpayer in that income year, there shall be allowed to that taxpayer a credit of tax equal to 50 per cent, of the amount of that expenditure.

(3) Where, in any income year, a business which incurs tourist promotion expenditure is carried on in Tonga by 2 or more persons jointly, whether in partnership or otherwise, any credit of tax allowable under this section in respect of that tourist promotion expenditure shall be apportioned between those persons in the same proportion that the income from that business is apportioned between those persons in that income year.

(4)	(a) Every credit of tax under this section in relation to any taxpayer other than a taxpayer holding a development licence and an income year, shall be deducted from or set off against any tax payable by that taxpayer in respect of that income year and any excess of that credit of tax shall be refundable to the taxpayer pursuant to Part IV of this Act as if it were tax paid in excess;

(b) Where the taxpayer is holding a development licence, every credit under this section shall be deducted from the tax that would have been payable, if no development licence was held and any excess of that credit of tax shall be refundable to the taxpayer pursuant to Part IV of this Act as if it were paid in excess.

(5) Where the Commissioner is satisfied, in relation to any income to any income year, that the amount of any credit of tax deducted, set off, or refunded to the taxpayer under subsection (4) of this section is in excess of the proper amount, the Commissioner may recover the amount of the excess in the same manner, with any necessary modifications, as if it were tax payable on income derived by the taxpayer in that income year.

(6) Any tourist promotion expenditure in respect of which a credit of tax has been or is to be allowed in any income year under subsection (2) of this section, shall, notwithstanding any other provision in this Act, not be allowable as a deduction in calculating the assessable income derived by the taxpayer in any income year.

(7) Where 2 or more persons who are prescribed agents of the taxpayer and are relatives of each other travel outside Tonga at the same time, with respect to the entitlement of taxpayer to a credit of tax under this section in respect of salaries or wages or other remuneration paid or payable in relation to the period of that travel or of fares and expenses in respect of accommodation and sustenance in relation to that travel - 

(a) If the taxpayer himself is one of those persons, such a credit of tax shall not be allowed in respect of the expenditure of any other of those persons who is not a permanent employee of the taxpayer:

(b) If the taxpayer himself is not one of those persons, but any of those persons is a permanent employee of the taxpayer, such a credit of tax shall not be allowed in respect of the expenditure of any of those persons who is not a permanent employee of the taxpayer:

(c) If none of those persons is either the taxpayer himself or a person who is a permanent employee of the taxpayer, such a credit of tax shall not be allowed in respect of the expenditure of any of those persons other than such one of them as the taxpayer, by notice in writing to the Commissioner, nominates.

(8) Subsection (7) of this section shall not operate to exclude a credit of tax in respect of the expenditure of a person if the Commissioner is satisfied that there are special circumstances by reason of which the credit of tax should be allowed.

(9) Where the amount of any outgoing constituting or forming part of any tourist promotion expenditure exceeds the amount that, in the opinion of the Commissioner, would reasonably be expected to be payable, in the ordinary course of business for the tourist-promotion in respect of which the outgoing was incurred, the Commissioner may, for the purposes of this section, treat the outgoing as being reduced by the amount of the excess.

(10) Every reference in this section to an income year shall, where the taxpayer or, as the case may be, the partnership of which he is a member furnishes a return of income under section 39 of this Act for an accounting year ending with an annual balance date other than the 30th day of June be deemed to be a reference to the accounting year corresponding with that income year, and, in every such case, this section shall, with any necessary modifications, apply accordingly. (Inserted by Act 3 of 1984.)

Export Performance Incentive for Qualifying Tourist Services

9. (1) For the purposes of this section - 

"net foreign currency earnings", in relation to a taxpayer and qualifying tourist services means the gross amount of foreign currency earnings received by the taxpayer from the sale of those services, reduced by an expenditure incurred by the taxpayer outside Tonga in connection with or in relation to the sale of those services;

"prescribed period", in relation to any income year, means the period commencing on the day immediately following the end of that income year and ending with the date on or before which the taxpayer is required in accordance with section 39 of this Act to furnish his return of income for that income year;

"qualifying tourist services", in relation to any taxpayer carrying on a business as a tourist wholesaler or retailer, means the supply within Tonga whether on a wholesale or retail basis, of accommodation, sustenance, internal transport, and admission to or the use of visitor facilities, to tourists from countries or territories outside Tonga where those services - 

(a) Are sold outside Tonga by the taxpayer; and

(b) Are paid for in foreign currency prior to the arrival in Tonga of the tourists;

"tourist wholesaler or retailer" means any person who in the opinion of the Commissioner, - 

(a) Is carrying on, as a business, or part of a business, of a continuing nature, the activity of selling qualifying tourist services, and

(b) As part of that business, is actively engaged in attracting tourists to Tonga from countries or territories outside Tonga.

(2) Subject to this section, where in any income year (being an income year ending on or before the terminating date) any taxpayer carrying on a business in Tonga as a tourist wholesaler or retailer has derived assessable income from the sale of qualifying tourist services and the Commissioner is satisfied that an amount of net foreign currency earnings in respect of that income has been transferred to the credit of the taxpayer - 

(a) By the transfer of foreign currency to Tonga through the Tonga banking system; or

(b) By payment in Tonga, in Tonga currency from funds held in Tonga which would otherwise be remittable from Tonga, prior to or within that income year or within the prescribed period in relation to that income year or within such later time as the Commissioner in his discretion may allow,

there shall be allowed to that taxpayer a credit of tax equal to 10 per cent of the amount of such net foreign currency earnings.

(3) Where, in any income year, a business in which qualifying tourist services are sold is carried on in Tonga by 2 or more persons jointly, whether in partnership or otherwise, any credit of tax allowable under this section in respect of the sale of those qualifying tourist services shall be apportioned between those persons in the same proportion that the income from that business is apportioned between those persons in that income year.

(4)	(a) Every credit of tax under this section in relation to any taxpayer other than a taxpayer holding a development licence in an income year, shall be deducted from or set off against any tax payable by that taxpayer in respect of that income year and any excess of that credit of tax shall be refundable to the taxpayer pursuant to Part IV of this Act as if it were tax paid in excess.

(b) Where the taxpayer is holding a development licence, every credit under this section shall be deducted from the tax that would have been payable if no development licence was held and any excess of that credit shall be refundable to the taxpayer pursuant to Part IV of this Act as if it were paid in excess.

(5) Where the Commissioner is satisfied, in relation to any income year, that the amount of any credit of tax deducted, set off or refunded to the taxpayer under subsection (4) of this section is in excess of the proper amount, the Commissioner may recover the amount of the excess in the same manner, with any necessary modifications, as if it were tax payable on income derived by the taxpayer in that income year.

(6) No credit of tax shall be allowed under this section unless the taxpayer has provided the Commissioner with a certificate of the net foreign currency earnings in such form as the Commissioner may from time to time require.

(7) Where the Commissioner is satisfied that arrangements have been made between a taxpayer and another person with a view to the affairs of the taxpayer and of that other person being so arranged or conducted that this section would, but for this subsection, have effect more favourably in relation to that taxpayer than would otherwise have been the case, the amount of any credit of tax to which the taxpayer is entitled shall not exceed the amount of the credit of tax to which that taxpayer would in the opinion of the Commissioner, have been entitled if those arrangements had not been made.

(8) Every reference in this section to an income year shall, where the company furnishes a return of income under section 39 of this Act for an accounting year ending with an annual balance date other than the 30th day of June, be deemed to be a reference to the accounting year corresponding with that income year, and in every such case, this section shall with any necessary modifications, apply accordingly.
(Inserted by Act 3 of 1984.)

Certain deductions not permitted

10. (1) Notwithstanding anything in section 6 of this Act, in calculating the assessable income derived by any person from any source, no deduction shall, except as expressly provided in this Act, be made in respect of any of the following sums or matters:

(a) any expenditure or loss to the extent to which it is incurred in any transaction not connected with the business of the taxpayer (whether or not connected with, or sustained in, any transaction entered into for the purpose, or with the intention, of making a profit);

(b) investment, expenditure, loss, or withdrawal of capital; money used or intended to be used as capital; money used in the improvement of premises occupied; interest which might have been made on any such capital or money if laid out at interest;

(c) bad debts, except debts which are proved to the satisfaction of the Commissioner to have been actually written off as bad debts by the taxpayer in the fiscal year:

Provided that all amounts at any time received on account of any such bad debts shall be credited as income in the fiscal year in which they are received, and shall be subject to tax accordingly;

(d) Any expenditure or loss recoverable under any insurance or right of indemnity;

(e) payment of any kind made by a husband to his wife or by a wife to her husband:

Provided that, with the consent of the Commissioner granted before the deduction is claimed by the taxpayer, a deduction is claimed by the taxpayer, a deduction may be made in respect of any payment made by a husband to his wife or by a wife to her husband where the Commissioner is satisfied that the payment is for services rendered (not being domestic services or services performed at or in connection with the home or services performed at the home in connection with any business carried on wholly or partly at the home) or is otherwise a bona fide payment, and that the payment was exclusively incurred in the production of the assessable income of the husband or wife, as the case may be, for the fiscal year;

(f) rent of any dwelling house or domestic offices, save that, so far as any such dwelling house or offices are used in the production of the assessable income, the Commissioner may allow a deduction of such proportion of the rent as he may think just and reasonable;

(g) income tax;

(h) interest, except so far as the Commissioner is satisfied that it is payable on capital employed in the production of the assessable income;

(i) any expenditure or loss to the extent to which it is of a private or domestic nature;

(j) any expenditure or loss to the extent to which it is incurred in gaining or producing income which is exempt from income tax.

(2) For the purposes of subsection (1) (a) of this section the Commissioner shall determine the extent to which any expenditure or losses sustained in any transactions are connected with the business of the taxpayer.

(3) For the purposes of subsection (1) (g) of this section - 

"Income Tax" means - 

(a) tax imposed under this Act; and includes additional tax for late payment of such tax and any penalty imposed under this Act;

(b) any tax imposed in any country or territory outside the Kingdom, being a tax which, in the opinion of the Commission, is substantially of the same nature as income tax imposed under this Act; and includes any additional tax for late payment of tax, any interest, any penalty, and any additional tax imposed under the penal provisions of the laws of that country or territory.

Incomes wholly exempt from tax

11. The following incomes shall be exempt from tax - 

(a) the whole of the income of His Majesty the King;

(b) the income derived by any charitable institution or by any body or trust established exclusively for charitable purposes, other than income derived by such institution, body or trust either directly or indirectly from the carrying on of any business; (Substituted by Act 28 of 1977.)

(c) income derived by any person from any pension granted to any member of Her Britannic Majesty's naval, military, or air forces or the Tonga Defence Force in respect of any disability suffered by the pensioner while serving in any of Her Britannic Majesty's forces or the Tonga Defence Force during any war; and the income derived by any person from any pension granted to any dependent relative of any person who was killed or suffered any disability while serving in the said forces in any such war;

(d) the income derived by any life insurance company in so far as that income is derived from life insurance premiums;

(e) income derived by any person from the payment of any pension or gratuity under the provisions of the Pensions Act and the Legislative Assembly Act or any other pension scheme approved by His Majesty in Council; (Amended by Act 4 of 1986.) Cap 8; Cap 4

(f) income derived by any fund, society, association or organisation or company whether incorporated or not, which may be specifically exempted by His Majesty in Council by Order-in-Council;

(g) any sum received by any person, by way of retiring or death gratuity or consolidated compensation for death or injuries;

(h) travelling, subsistence, or meeting allowances paid out from the revenue provided under the Annual Estimates of both the Government and Boards or by Special Order-in-Council by His Majesty in Council; (Inserted by Act 4 of 1983.)

(i) interest derived by any person from deposits in the Savings Bank of Tonga:

Provided that the amount of the exemption under this paragraph in any fiscal year shall not exceed T$900; (Amended by Act 4 of 1986.)

(j) any sums, as approved by His Majesty in Council, paid by the Government of another country to any person or persons employed by or on behalf of the Government of Tonga in accordance with any agreement between the Government of Tonga and the Government of the other country relating to the employment of that person or persons;

(k)	(i) income of an approved Industrial Enterprise as defined in the Industrial Development Incentives Act 1978 and; (Cap 114)

(ii) dividends of a shareholder in such approved Industrial Enterprise derived during the tax holiday period set out in that Act; (Inserted by Act 4 of 1978.)

(l) income or part of the income of any company or organisation whether incorporated or not which may be, upon the recommendation of the Minister of Finance, specifically exempted by Order-in-Council for reason of being an industry new to Tonga and considered by His Majesty in Council to be of such considerable national interest to warrant such an exemption. (Inserted by Act 4 of 1983.)

Income credited in account or otherwise dealt with.

12. For the purposes of this Act every person shall be deemed to have derived income although it has not been actually paid to or received by him, or already become due or receivable, but has been credited in account, or reinvested, or accumulated, or capitalised, or carried to any reserve, sinking or insurance fund, or otherwise dealt with in his interest or on his behalf.

Adjustment for incorrect accounting practice in previous years.

13. Where the Commissioner in calculating the assessable income of any taxpayer derived from any business in any fiscal year is satisfied that the assessable income of that taxpayer in any preceding fiscal year or years has been understated or overstated by reason of any incorrect accounting practice adopted in any such year or years, the Commissioner may make such adjustments to the amount owing by the taxpayer in relation to any fiscal year, as he considers reasonable, and the adjusted amount shall be deemed to be the amount of the assessable income from the business in any such year of adjustment.

Appointment of income received in anticipation.

14. (1) When income is derived by any person in any fiscal year by way of fines, premiums, or in any other like manner by way of anticipation, the Commissioner may, if he thinks fit in his discretion, at the request of the person, apportion that income between the fiscal year and any number of succeeding fiscal years not exceeding 5, and the part so apportioned to each shall be deemed to have been derived in that year, and shall be assessable and liable for tax accordingly.

(2) Where any such apportionment is made the Commissioner may, to the extent he thinks fit, in his discretion, apportion any payment of withholding tax made in respect of any such income, to any fiscal year to which such income is apportioned.

(3) Any such apportionment may be at any time cancelled by the Commissioner and thereupon the income or, as the case may be, the withholding tax, so apportioned, or any part thereof on which income tax has not been paid or, as the case may be, any part thereof which has not been credited against tax shall become assessable for tax or, as the case may be, shall be credited against tax, as if derived or paid during the fiscal year preceding the year in which the apportionment was so cancelled.

Valuation and trading stock.

15. (1) For the purpose of this section the term "trading stock" includes anything produced or manufactured, and anything acquired or purchased for purposes of manufacture, sale or exchange; and also includes livestock.

(2) Where any taxpayer owns or carries on any business, the value of his trading stock at the beginning and at the end of every fiscal year shall be taken into account in ascertaining whether or not he has derived assessable income during that year.

(3) The value of the trading stock of any taxpayer to be taken into account at the beginning of any fiscal year shall be its value as at the end of the last preceding fiscal year:

Provided that where the taxpayer's business is commenced and his trading stock is acquired during the fiscal year the value of the trading stock at the beginning of the fiscal year shall be deemed to be an amount equal to its cost price.

(4) The value of the trading stock of any taxpayer to be taken into account at the end of any income year shall be its cost price.

(5) Notwithstanding anything in subsection (4) of this section the Commissioner may in his discretion, on the application of the taxpayer, in relation to any trading stock, determine that the value of that trading stock shall be a value higher or lower than its cost price.

(6) Where the value of the trading stock of any taxpayer at the end of the fiscal year exceeds the value of his trading stock at the beginning of that year, the amount of the excess shall be included in his assessable income for that year.

(7) Where the value of the trading stock of any taxpayer at the beginning of any fiscal year exceeds the value of his trading stock at the end of that year the amount of the excess shall be allowed as a deduction in calculating the assessable income of the taxpayer for that year.

COUNTRY OF DERIVATION OF INCOME

Place of residence, how determined.

16. (1) A person, other than a company, shall be deemed to be resident in the Kingdom if his home is in the Kingdom.

(2) A company shall be deemed to be resident in the Kingdom if it is incorporated in the Kingdom or has the centre of its administrative management in the Kingdom.

Liability for assessment of income derived from the Kingdom and abroad.

17. (1) Subject to this Act, all income derived by any person who is resident in the Kingdom at the time when he derives that income shall be assessable for income tax, whether it is derived from the Kingdom or from elsewhere.

(2) Subject to this Act, all income derived from the Kingdom shall be assessable for income tax, whether the person deriving that income is resident in the Kingdom or elsewhere.

(3) Subject to this Act, no income which is neither derived from the Kingdom nor derived by a person then resident in the Kingdom shall be assessable for income tax.

Classes of income deemed to be derived from the Kingdom.

18. (1) The following classes of income shall be deemed to be derived from the Kingdom -

(a) income derived from any business wholly or partly carried on in the Kingdom;

(b) all salaries or wages earned in the Kingdom in the service of any principal or employer, whether resident in the Kingdom or elsewhere;

(c) income derived from shares in or membership of a resident company, or from debentures issued by a resident company;

(d) income derived from the sale or other disposition of any property, corporeal or incorporeal, situated in the Kingdom;

(e) income derived by any person from money lent or used in the Kingdom (whether on security or otherwise);

(f) income derived from contracts made or wholly or partly performed in the Kingdom;

(g) income derived from the carriage by sea or by air of merchandise, goods, livestock, mails, or passengers shipped or embarked in the Kingdom;

(h) royalties and other payments of any of the kinds referred to in paragraph (e) or paragraph (f) of section 4 of this Act, being royalties or payments - 

(i) that are paid by a person who is resident in the Kingdom and are not paid in respect of a business carried on by him outside the Kingdom through a fixed establishment outside the Kingdom; or

(ii) that are paid by a person who is not resident in the Kingdom and are deductible by him in calculating his assessable income for the purposes of tax in the Kingdom;

(i) income derived directly or indirectly from any other source in the Kingdom.

(2) For the purposes of subsection (1)(e) of this section the term "money lent" includes - 

(a) money advanced, deposited, or otherwise let out, whether on current account or otherwise;

(b) any credit given (including the forbearance of any debt), whether on current account or otherwise.

Apportionment when income derived partly in the Kingdom and partly elsewhere.

19. (1) Whenever by reason of the manufacture, production or purchase of goods in one country and their sale in another, or by reason of the making of contracts in one country and their performance in another, or for any other reason whatsoever, the source of the income is not exclusively in the Kingdom, that income shall be apportioned between its source in the Kingdom and its source elsewhere, or attributed to one of such sources to the exclusion of the other, in such manner as the Commissioner considers just and reasonable having regard to the nature and the relative importance of the sources of that income; and the income, so far as so apportioned or attributed to a source in the Kingdom, shall be deemed to be derived from the Kingdom, and shall be assessable for tax accordingly.

(2) This section shall not be construed as applying to - 

(a) income of any of the classes referred to in subsection (1) (except paragraphs (a) and (f) of section 18 of this Act);

(b) income of any of the classes referred to in the said paragraph (a) or paragraph (f) of section 18(1) of this Act to the extent that that income consists of income of any of the classes referred to in any of the other provisions of that subsection.

"Absentee" defined.

20. In this part of the Act the term "absentee" means - 

(a) any person (other than a company) who is for the time being out of the Kingdom;

(b) any non-resident company, unless it has a fixed and permanent place of business in the Kingdom at which it carries on business in its own name;

(c) any non-resident company which is declared by the Commissioner to be an absentee by notice given to the company or to its agent in the Kingdom so long as that declaration remains unrevoked.

Liability of principal not affected.

21. (1) Nothing in this Act relating to an agent shall be so construed as to release the principal from liability to make returns and pay tax and the principal and agent shall be jointly and severally liable for the tax.

(2) When two or more persons are liable as agents in respect of the same tax they shall be jointly and severally liable therefor.

Provision applying to agents.

22. Subject to this Act, the following provisions shall apply with respect to every agent:

(a) he shall be answerable for the doing of all such things as are required to be done pursuant to this Act in respect of the income derived by him in his representative capacity, or derived by the principal by virtue of his agency, and for the payment of tax thereon;

(b) he shall in respect of that income make returns and be assessable thereon but in his representative capacity only, and each return and assessment shall be separate and distinct from any other;

(c) he is hereby authorised and required to retain from time to time out of any money which comes to him in his representative capacity so much as is sufficient to pay the tax which is or will become payable in respect of that income;

(d) he shall not make any payment of income to any non-resident or absentee or transfer out of the Kingdom any sum for the purpose of making any such payment, unless and until arrangements have been made to the satisfaction of the Commissioner for the payment of any tax which is or will become payable in respect of that income;

(e) he is hereby made personally liable for the tax payable in respect of the income to the extent of any amount that he has retained, or should have retained under paragraphs (c) and (d);

(f) he is hereby indemnified for all payments which he makes in pursuance of this Act or of any requirement of the Commissioner;

(g) where as one of two or more agents he pays an amount for which they are jointly liable, the other or others shall each be liable to pay him each his equal share of the amount so paid;

(h) for the purpose of ensuring the payment of tax the Commissioner shall have the same remedies against attachable property of any kind vested in or under the control or management or in the possession of any agent, as he would have against the property of any other taxpayer in respect of tax.

Recovery of tax paid on behalf of another person.

23. Every person who, pursuant to this Act pays any tax for or on behalf of any other person may recover the same from that other person as a debt in any Court of competent jurisdiction or may retain or deduct the same out of any money at any time in his hands belonging or payable to that other person.

Agents of absentees and non-residents.

24. Subject to this Act, it is declared that notwithstanding there may be another agent in the Kingdom (who shall continue to be liable as such agent) -

(a) every person who carries on any business in the Kingdom on behalf of a principal who is an absentee is deemed to be agent of that principal in respect of all income derived from that business and shall be liable for tax thereon whether or not any income comes to him in his representative capacity;

(b) every person who carries on business in the Kingdom in partnership with an absentee is deemed to be agent of that absentee in respect of his share of the income of the partnership and shall be liable for tax thereon whether or not any income comes to him in his representative capacity;

(c) where any non-resident derives assessable income from the Kingdom from the business of shipping, the master of any ship and the captain of any aircraft to which section 35 of this Act applies is deemed to be an agent of that non-resident in respect of all income derived from the carriage of merchandise, goods, livestock, mails or passengers by that ship or aircraft as the case may be, and shall be liable for tax thereon whether or not any income comes to him in his representative capacity;

(d) every person who in the Kingdom collects or receives or in any way has the possession, control or disposal of any income derived by an absentee is deemed to be the agent of the absentee in respect of that income.

Agents of non-residents carrying on business in the Kingdom.

25. (1) Where any non-resident sells goods or merchandise by means of anything done by himself when in the Kingdom or any person when in the Kingdom is instrumental in bringing about the sale of goods or merchandise of a non-resident and the goods or merchandise are in the Kingdom or are to be brought into the Kingdom for the purpose or in pursuance or consequence of such sale, that non-resident shall be deemed to have sold the goods or merchandise in the course of carrying on business in the Kingdom, whether the contract of sale is made in or out of the Kingdom.

(2) Any person who when in the Kingdom is instrumental in bringing about the sale of goods or merchandise of a non-resident is deemed to be the agent of that non-resident in respect of all income derived from that business in the Kingdom and shall be liable for tax thereon whether or not any income comes to him in his representative capacity.

Non-resident trader or agent to give security.

26. (1) The Commissioner may at any time and from time to time require any non-resident trader or non-resident agent to give security by way of bond, deposit or otherwise to the satisfaction of the Commissioner, for the payment of any tax which may become payable by him.

(2) After security has been so demanded and before it has been duly given, it shall not be lawful for the non-resident trader to carry on business or for the non-resident agent to act as agent, except with the prior approval in writing of the Commissioner.

INDIVIDUALS - RATES OF TAX AND SPECIAL EXEMPTIONS

Rates of tax for individuals.

27. (1) In determining the rate of tax applicable to any taxpayer (other than a company or a public authority) for any fiscal year in accordance with the First Schedule to this Act, every taxpayer shall have tax assessed and levied at the "O" rate except to the extent that he satisfies the Commissioner that he supports or is deemed to support any dependant or dependants, in accordance with this section, and where the Commissioner is so satisfied, the taxpayer shall have tax assessed and levied at the "1" or "2" or "3" or "4" or "5" rate in accordance with the number of dependants supported or deemed to be supported by him.

(2) Where a taxpayer who at any time during the fiscal year is a married person supporting a spouse whose taxable income in her or his own right derived from all sources in the fiscal year amounted to less than T$1,200, the taxpayer shall be deemed to support that spouse as a dependant and shall be entitled to have tax assessed and levied accordingly:

Provided that a taxpayer whose marriage is terminated and who remarries in the fiscal year shall not be entitled to claim the benefit of this subsection in respect of more than one spouse. (Amended by Act 4 of 1986.)

(3) Where a taxpayer is, throughout the fiscal year, a widow or a widower supporting a dependent child or children, he or she shall be deemed to be supporting a spouse as a dependant and shall be entitled to have tax assessed and levied accordingly.

(4) Where a taxpayer who at any time during the fiscal year supports a dependent child he shall be deemed to support that child as a dependant and shall be entitled to have tax assessed and levied accordingly:

Provided that, where one taxpayer is deemed to support any such child in any fiscal year in accordance with this section, no other taxpayer shall be deemed to support the same child in that fiscal year.

General exemption.

28. (1) For the purpose of assessing tax every taxpayer shall be entitled to a personal exemption from his assessable income of the amount of T$2,000.

Dependent child exemption.

(2) For the purpose of assessing tax every taxpayer shall be entitled to a special exemption of T$350 each for his first, second, third, fourth and fifth dependants.

Dependent parent exemption.

(3) For the purpose of assessing tax every taxpayer shall be entitled to a special exemption of T$350 for each dependant parent. (Inserted by Act 4 of 1986 and Amended by Act 3 of 1987.)

Special exemption in respect of gifts of money and payments of school fees.

29. (1) For the purpose of assessing tax every taxpayer (other than an absentee or a company or a public authority or an unincorporated body) shall be entitled to a deduction by way of special exemption from his assessable income of -

(a) the amount of any gift (not being a testamentary gift) of money made by him in the fiscal year to any institution, body, trust or fund the funds of which are, in the opinion of the Commissioner, applied wholly or principally to any charitable purposes within the Kingdom; and

(b) the amount of any fees, including those fees paid in respect of lodging and travelling, paid by him in the fiscal year in respect of the education within or outside the Kingdom of any dependent child of the taxpayer. (Amended by Act 4 of 1983.)

(2) The deduction by way of special exemption provided for in this section shall not, in the case of any taxpayer, in any fiscal year exceed T$500 in respect of paragraph (1)(a) and T$2,500 for any child in respect of paragraph (1)(b). (Amended by Act 4 of 1983.)

Retirement fund exemption.

30. (1) For the purpose of assessing tax every taxpayer who in any fiscal year pays contributions to a personal retirement fund deposited in a domestic bank and approved by the Commissioner, shall be entitled to a reduction by way of a special exemption from his or her assessable income for that fiscal year of the amount of those contributions.

(2) The deduction by way of special exemption provided in this section shall not in the case of any taxpayer, in any fiscal year exceed T$1,500. (Inserted by Act 4 of 1986.)

Special exemption in respect of life insurance premiums.

31. (1) For the purpose of assessing tax every taxpayer who in any fiscal year pays personal contributions to a superannuation fund or pays premiums in respect of a policy of life insurance or a policy of personal accident or sickness insurance for the taxpayer's own benefit or for the benefit of the taxpayer's spouse or dependent children, shall be entitled to a deduction by way of special exemption from his or her assessable income for that fiscal year of the amount of those contributions or premiums.

(2) The deduction by way of special exemption provided for in this section shall not, in the case of any taxpayer other than an absentee, in any fiscal year exceed T$600. (Amended by Acts 4 of 1983 and 4 of 1986.)

House exemption.

32. (1) For the purpose of assessing tax every taxpayer shall be entitled to a deduction by way of special exemption from his assessable income of the amount of repayment of a loan from a bank incorporated in Tonga for the purpose of building or extending a dwelling house.

(2) The deduction by way of special exemption provided for in this section shall not, in the case of any taxpayer, in any fiscal year exceed T$300. (Inserted by Act 5 of 1985.)

Fixed asset exemption.

33. (1) For the purpose of this section - 

"fixed assets", are defined as non dwelling buildings, machinery and equipment and breeding stock and shall not include any motor vehicle of any type.

(2) For the purpose of assessing tax, a company incorporated in Tonga or partnership or a sole trader shall be entitled to a deduction by way of special exemption from its assessable income of the amount of repayment of a loan from a bank incorporated in Tonga for the purpose of the purchase of a fixed asset.

(3) The deduction by way of special exemption provided for in this section shall not, in the case of any taxpayer, in any fiscal year exceed T$1,000. (Inserted by Act 5 of 1985.)

COMPANIES

Assessment of non-resident insurance companies.

34. Notwithstanding anything in this Act, where any company, not being resident in the Kingdom derived insurance premiums (other than premiums in respect of life insurance) from within the Kingdom, the gross amount of those premiums shall be deemed to be chargeable income derived by that company from the Kingdom. No company to whom this section applies shall in respect of such premiums be assessable for income tax otherwise than as provided in this section.

Assessment of non-resident shipping and airline companies.

35. Notwithstanding anything in this Act, where any shipping company or any airline company, not being resident in the Kingdom carries outside the Kingdom, or carries within the Kingdom, merchandise, goods, livestock, mails or passengers, shipped, embarked or boarded in the Kingdom, the gross amount paid to that company in respect of that carriage shall be deemed to be chargeable in respect of that carriage from the Kingdom. No company to which this section applies shall in respect of carriage as aforesaid, be assessable for income tax otherwise than as provided in this section.

Export Oriented Companies.

36. (1) His Majesty in Council may by Order-in-Council designate any company whose total production is exported to be an export oriented company.

(2) Any company designated as an export oriented company under subsection (1) of this section shall operate in any of the following categories:

(a) manufacturing;

(b) farming;

(c) fishing;

(d) computer assembly;

(e) aircraft assembly;

(f) motor vehicle assembly;

(g) pleasure craft and yacht construction;

(h) "Haute couture" manufacturing;

(i) biotechnology production;

(j) electronic assembly and production;

(k) pharmaceutical production for generic drugs;

(l) ancillary services supporting any of the categories specified in items (a) to (k) hereof;

(m) any other categories that His Majesty in Council may by Order specify.
(Inserted by Act 5 of 1985.)

Credits in respect of foreign tax.

37. (1) Subject to this section where a person who is resident in the Kingdom derives income from a country or territory outside the Kingdom, tax paid in that country or territory in respect of that income shall be allowed as a credit against tax payable in the Kingdom in respect of that income.

(2) Where a credit for foreign tax is allowable under this section, the amount of that credit shall not exceed the amount of Tongan tax payable in respect of that income.

(3) For the purposes of this section the term "tax" means -

(a) in respect of a country or territory outside the Kingdom, any tax which in the opinion of the Commissioner is substantially of the same nature as tax imposed under this Act; but does not include any additional tax for late payment of tax or any interest or penalty or additional tax imposed under the penal provisions of the laws of that country or territory;

(b) in respect of the Kingdom, tax imposed under this part of this Act; but does not include any additional tax for late payment of tax or any interest or penalty or additional tax imposed under this Act.

Tax avoidance arrangements void.

38. (1) Every arrangement shall be absolutely void as against the Commissioner for income tax purposes if and to the extent that its purpose or one of its main purposes is tax avoidance.

(2) In determining whether the purpose or one of the main purposes of an arrangement is tax avoidance the following considerations shall be taken into account:

(a) whether the arrangement might reasonably be expected to have been entered into and implemented in that particular way if tax avoidance had not been its purpose or one of its main purposes;

(b) whether the rights and obligations arising under the arrangement might reasonably be expected to have been created under an arrangement not having tax avoidance as its purpose or one of its main purposes;

(c) the extent to which the emphasis in the arrangement is substantially on income factors;

(d) the overall effect of the arrangement on the practical carrying on of any existing business or other activity to which it relates;

(e) the dependence on the taxpayer for the earning or accruing of income under the arrangement;

(f) the extent of the control over the earning and disposition of income under the arrangement in practice achieved by the taxpayer;

(g) any disadvantage accruing to the taxpayer from the arrangement;

(h) the tax advantage obtained through the arrangement;

(i) the income tax and other implications of other courses of action open to the taxpayer at the time he entered into the arrangement;

(j) any other relevant consideration.

(3) Where an arrangement is void under this section the assessable income of a taxpayer party to the arrangement shall be adjusted as the Commissioner considers appropriate so as to counteract the tax advantage obtained by the taxpayer under the arrangement and without limiting the generality of the foregoing the Commissioner shall have regard to the income tax that in his opinion would in all likelihood have been derived by the taxpayer (including deductions that in the opinion of the Commissioner would in all likelihood have been incurred by the taxpayer) had the arrangement not been entered into.

(4) Where by reason of the operation of this section an amount is included in or not deducted in arriving at the assessable income of any taxpayer which in the opinion of the Commissioner is directly or indirectly included or reflected in the assessable income of any other taxpayer the assessable income of the other taxpayer shall be reduced by that amount.

(5) For the purpose of this section - 

"arrangement" means any agreement, plan, or understanding whether enforceable or unenforceable including all steps and transactions by which it is carried into effect;

"liability" includes a potential or prospective liability in respect of future income;

"purpose" means the end in view or object of the arrangement and does not include the motive or intention of the taxpayer except insofar as evidence in the arrangement;

"tax avoidance" includes directly or indirectly - 

(a) altering the incidence of any tax;

(b) relieving any person from liability to pay tax;

(c) avoiding, reducing or postponing any liability to pay tax.

(6) This section shall apply and prevail notwithstanding any other provision in this Act except only where it is expressly and specifically otherwise provided.

PART III - RETURNS AND ASSESSMENTS

Annual Returns.

39. (1) Every person liable to tax under this Act shall in each year without notice or demand, and any person shall, whether or not liable to tax hereunder, upon receipt of a notice or demand in writing from the Commissioner or any officer authorised to make such demand, deliver to the Commissioner, a return, in such form as may be prescribed by the Commissioner of his assessable income from all sources during the preceding fiscal year.

(2) The annual return of income required under this section shall be delivered to the Commissioner in each year -

(a) where the taxpayer, not being a company, derived income in the preceding fiscal year solely from source deduction payments or interest, not later than the 31st day of August;

(b) where the taxpayer, not being a company, is one to whom paragraph (a) of this subsection does not apply, not later than the 31st day of August; (Amended by Act 9 of 1978.)

(c) where the taxpayer is a company, not later than the expiry of 2 months from the date of the end of its fiscal year.

(3) When income is derived by two or more persons jointly, whether as partners or co-trustees -

(a) In the case of trustees, they shall make a return of that income of the firm, setting forth the amount of that income, and shall be jointly assessable thereon and jointly and severally liable for the tax so assessed.

(b) In the case of partners -

(i) They shall make a joint return of the income of the firm setting forth the amount of that income and the shares of the several partners therein;

(ii) Each partner shall make a separate return of all income derived by him and not included in any such joint return;

(iii) There shall be no joint assessment but each partner shall be separately assessed and liable for the tax payable on his total income, including his share of income of any firm in which he is a partner. (Inserted by Act 4 of 1983.)

(4) For the purposes of this Act, a husband and wife carrying on business together shall not be deemed to be carrying on business as partners, unless in fact they are carrying on business under a deed of partnership. For the purposes of this section, a contract of employment or a contract of partnership shall be deemed to be bona fide if it complies with the following conditions:

(a) The contract is in writing signed by all the parties thereto:

(b) No partner and no person employed or engaged under the contract was under the age of 20 years at the date on which the contract was signed:

(c) Each partner to the contract has real and effective control of the remuneration, salary, share of profits, or other income to which he is entitled under the contract. (Inserted by Act 4 of 1983.)

(5) The return in the case of a company, corporation, association, partnership or other body whether corporate or not shall be made and signed by the managing director, local manager, agent, secretary or treasurer having a personal knowledge of the affairs of such company, corporation, association, partnership or other body, or in any case by such person or persons employed in the business liable or believed to be liable to tax as the Commissioner may require.

(6) If a person is unable for any reason to make a return required by this section, such return shall be made by the guardian, curator, tutor or other legal representative of such person, or, if there is no such legal representative, by someone acting as agent for such person, and, in the case of the estate of any deceased person, by the executor, administrator or heir of such deceased person, and, if there is no person to make a return under the provisions of this subsection then by such person as may be required by the Commissioner to make such return.

(7) A return purporting to be made by or on behalf of any person shall for all purposes be deemed to have been made by that person or by his authority, as the case may be, unless the contrary is proved.

(8) The Commissioner may at any time extend the time for delivering any return to such date as he in his discretion thinks proper in the circumstances.

(9) Every person required to make a return under the provisions of this section who fails to do so within the time limited therefor shall be subject to a penalty of $10 and such penalty shall be assessed and collected from the person liable to make a return in the same manner in which taxes are assessed and collected.

(10) Any person liable to pay any tax under this Act who in the return of his assessable income makes a return in which he states the said assessable income to be less than the true amount, shall pay to the Commissioner the additional amount of tax due on the income omitted from his return and in addition a penalty of $10.

If the amount of income omitted from his return exceeds 10 per cent of the correct income, but is under 20 per cent of the same, such person shall pay the Commissioner an additional amount equal to one half of the amount of such deficiency, and if the deficiency amounts to 20 per cent or more of the correct income, such person shall pay to the Commissioner an additional amount equal to the amount of such deficiency.

The penalties herein contained are additional to and not in lieu of any penalty imposed under any other section of this Act.

Special returns and assessments.

40. (1) This section applies to the following persons:

(a) an agent;

(b) a non-resident trader;

(c) a person who is believed by the Commissioner to be about to leave the Kingdom or to be about to discontinue the carrying on of business in the Kingdom;

(d) a person who has ceased to carry on business in the Kingdom or to derive assessable income;

(e) the executors or administrators of a deceased taxpayer in respect of income derived by him in his lifetime;

(f) a person who has become bankrupt, or a company which is in the course of being wound up.

(2) The Commissioner may, if he thinks fit, at any time during the fiscal year or in any subsequent fiscal year, require any person to whom this section applies to make a return of income derived from any specified transaction or transactions or during any specific period, and may assess him for tax on the income so returned, or when default is made in making such a return, or the Commissioner is dissatisfied therewith, then on such sum as the Commissioner thinks reasonable, and shall give notice of the assessment to the person so assessed.

(3) Any person so assessed shall have the same right of objection as if he had been assessed in the ordinary course.

(4) Tax so assessed shall be payable on demand, which may be made in and by the notice of assessment, or at any later date, and the tax shall be recoverable in the same manner as tax assessed in the ordinary course.

(5) No assessment made under this section shall in any manner preclude a subsequent assessment of the same person in the ordinary course in respect of the whole of the income derived by him during the fiscal year with respect to which the assessment under this section was made, but in such case the tax paid under the earlier assessment shall be credited in the subsequent assessment.

Commissioner to make assessments.

41. (1) From returns made as aforesaid and from any other information in his possession the Commissioner shall in and for every fiscal year, and from time to time, make assessments in respect of every taxpayer and shall send a notice of assessment to every taxpayer stating therein the amount upon which tax is payable, the amount of the tax and the date by which the amount of such tax is to be paid.

(2) Subject to subsection (1) of this section where any taxpayer has furnished a return in respect of any income year that shows or purports to show that the taxpayer has incurred a loss for that income year the Commissioner shall determine the amount of the loss in accordance with the provisions of this Act for the calculation of the assessable income. (Inserted by Act 4 of 1983.)

(3) Any taxpayer who satisfies the Commissioner that he has in any income year incurred a loss shall subject to this section be entitled to claim that -

(a) The loss be carried forward to the income year immediately succeeding the income year in which the loss was incurred and deducted from or set off against the assessable income, if any, derived in that immediately succeeding income year so far as that assessable income extends, and

(b) So far as it cannot be deducted or set off, the loss be carried forward from that immediately succeeding income year and deducted from or set off against the assessable income, if any, derived in that next succeeding year, and so on. (Inserted by Act 4 of 1985.)

(4) Every such assessment shall be made in such form and manner as the Commissioner thinks fit.

(5) At the request of the taxpayer the Commissioner may accept from any taxpayer payment of any such amount by instalment, each such instalment to be paid on such dates as the Commissioner may specify.

(6) If any person fails to pay such amount or any instalment thereof at the time when such amount or instalment should be paid, he shall pay, in addition to any other penalties, a penalty of $2 or 25 per cent of the tax unpaid, whichever is the greater.

(7) The Commissioner may at any time extend the date of payment of an assessment.

Commissioner not bound by returns.

42. The Commissioner shall not be bound by any return or information supplied to him by or on behalf of a taxpayer and, notwithstanding such return or information, or if no return has been made, the Commissioner may determine the amount of tax to be paid by any person.

Continuing liability.

43. Any person liable to pay tax shall continue to be liable and, in case any person so liable shall fail to make a return as required by this Act or shall make an incorrect or false return and does not pay the tax in whole or in part, the Commissioner may at any time assess such person for the tax or such portion thereof as he may be liable to pay, and may prescribe the time within which any appeal may be made under the provisions of this Act from the assessment, and may fix the date of payment of the tax.

Validity of assessment.

44. The validity of an assessment shall not be affected by reason that any of the provisions of this Act have not been complied with.

Assessments deemed correct except in proceedings on objection.

45. Except in proceedings on objection under Part VII of this Act, no assessment made by the Commissioner shall be disputed in any Court or in any proceedings on any ground whatsoever and, except as aforesaid every assessment and all the particulars thereof shall be conclusively deemed and taken to be correct, and the liability of the person so assessed shall be determined accordingly.

PART IV - REFUNDS AND RELIEF FROM TAX

Refunds of excess tax.

46. In any case where the Commissioner is satisfied that tax has been paid in excess of the amount properly payable, he shall refund the amount paid in excess:

Provided that no refund shall be made under this section after the expiration of the period of one calendar year immediately after the end of the calendar year in which the assessment was made, unless written application for the refund is made by or on behalf of the taxpayer before the expiration of that period.

Power of Commissioner in respect of small amounts.

47. Notwithstanding anything in this Act the Commissioner may, in his discretion, refrain from either issuing a notice of assessment or collecting or refunding tax in any case where, as the case may be -

(a) the balance of any tax payable does not exceed $2; or

(b) the tax paid or deducted exceeds the amount of the tax for which the taxpayer is liable by an amount not exceeding 50 seniti.

Relief from tax

48. On written application made by any taxpayer the Commissioner may remit the whole or any part of the tax or additional tax payable by the taxpayer where, having regard to the circumstances of the case, he considered it equitable to do so.

PART V - TAX DEDUCTIONS BY EMPLOYERS
FROM PAYMENTS OF SALARY OR WAGES

Application of this Part.

49. (1) This Part of this Act shall apply notwithstanding anything in any other part of this Act.

(2) This part of this Act shall apply to any salary or wages paid for any period on or after the 1st day of July, 1977.

(3) If any question is raised as to whether or not a payment of salary or wages is as to the whole or any part thereof subject to this part, it shall be determined by the Commissioner.

(4) It shall be a ground for objection under Part VIII of this Act to an assessment of the amount of any tax deduction that any determination of the Commissioner made for the purposes of this section is erroneous.

Tax deductions to be made by employers.

50. (1) For the purpose of enabling the collection of income tax from employers by instalments, where payment of salary or wages is made, the employer or other person by whom the payment is made shall, at the time of making the payment, make a tax deduction therefrom in accordance with this Part of this Act.

(2) This section shall apply notwithstanding that the payment may be protected against assignment or charge.

When salary or wages deemed to accrue and to be paid or received.

51. When a payment of salary or wages is paid to any employee, the value of that payment shall be deemed to accrue from day to day, and accordingly in each case the amount so accrued for any days in a pay period of the employee shall be deemed to be his source deduction payment or, as the case may be, part of his source deduction payment for the pay period.

Payment to be made by employee where tax deduction exceeds payment of salary or wages.

52. (1) Where at the time when a payment of salary or wages is made to any employee the amount of the payment available in money is less than the amount of the tax deduction, or there is no amount available in money, the employee shall forthwith pay to the employer the amount of the deficiency in the tax deduction or, as the case may be, the amount of the tax deduction, and every amount so paid on any date shall be deemed to be a tax deduction made by the employer on that date from the payment made to the employee.

(2) If an employee makes default in paying to the employer any amount payable under this section, or any part of any such amount, the amount in respect of which default has been made shall be deemed for the purposes of Section 61 of this Act to be a tax deduction that should have been made and was not made, and the provisions of that section shall apply accordingly.

Making of tax deduction from payments of salary and wages to non-residents.

53. (1) Where -

(a) a tax deduction from a payment of salary or wages has not been made, or has not been made in full, under this part of this Act; and

(b) that payment has been made to an agent or other person in the Kingdom for or on behalf of a non-resident entitled to the payment -

that agent or other person shall, at the time of receiving the payment, make the tax deduction therefrom, or, as the case may be, make a deduction therefrom of the amount of the deficiency in that tax deduction.

(2) Where -

(a) a person makes a tax deduction under this part of this Act from payment of salary or wages; and

(b) the payment is made by him to an agent or other person in the Kingdom for or on behalf of a non-resident entitled to the payment -

the first-mentioned person shall, at the time of making the payment, advise that agent or other person in writing of the amount of the tax deduction made by him from the payment.

Amounts of tax deductions.

54. (1) Subject to this Act every tax deduction shall be of such amount as is specified in the Second Schedule to this Act:

Provided that where, by reason of the size of a payment, or for any other reason, the amount of a tax deduction is not fixed by that Schedule, the tax deduction shall be of such amount as is fixed by the Commissioner, taking into account the same factors as have been taken into account in fixing the amounts of other tax deductions of a like nature.

(2) Except as otherwise provided in this Act, the amount of every tax deduction shall be the maximum amount for the time being in force having regard to the nature and amount of the payment of salary or wages:

Provided that where a reduced deduction applies to the employee under section 55 of this Act the tax deduction shall be of an amount equal to the amount of the reduced deduction.

Application of tax codes.

55. (1) For the purposes of this part of this Act the tax code of any employee, in relation to any payment of salary or wages, shall be such one of the following codes as applies to the employee in respect of those payments in accordance with this section, namely:

"0", signifying an employee who has no dependants; or an employee who has not delivered to the employer a tax code declaration;

"1", signifying an employee who has 1 dependant;

"2", signifying an employee who has 2 dependants;

"3", signifying an employee who has 3 dependants;

"4", signifying an employee who has 4 dependants;

"5", signifying an employee who has 5 or more dependants.

(2) Subject to this Act, where an employee to whom this section applies desires that a reduced deduction shall apply to him (whether or not the same or any other reduced deduction has previously applied to him), he may deliver to his employer a tax code declaration completed in a form authorised by the Commissioner, and thereupon that tax code shall apply to the employee in accordance with this section.

(3) Where an employee has delivered a tax code declaration to his employer, the tax code shall, subject to this Act, apply to the employee in respect of all payments of salary or wages made by the employer to the employee after the delivery of the declaration during a continuous period of employment with the same employer.

(4) Where a tax code applies to an employee on the date on which a person named as a dependant of the employee in the tax code declaration on which the tax code is based, ceases to be a dependant of the employee, the tax code shall not apply to the employee in respect of any payment of salary or wages made by the employer in respect of any payment of salary or wages made by the employer to the employee after that date, not being a payment for a pay period current on that date:

Provided that where the employee delivers a further tax code declaration to the employer within the 15 days specified in subsection (5) of this section, the tax code specified in that declaration shall be deemed to have commenced to apply to the employee immediately after the former tax code ceased to apply to him.

(5) Where a tax code ceases under subsection (4) of this section to apply to an employee by reason of any person ceasing to be a dependant of the employee the employee shall not later than 15 days after the date on which he became aware that that person had ceased to be a dependant, give a new tax code declaration to the employer.

(6) No employer shall be liable for making a reduced deduction according to a tax code after it has ceased under subsection (4) of this section to apply to the employee but before the employer has received notice that any dependant has ceased to be a dependant of the employee.

(7) A reduced deduction applying to an employee in respect of his employment by an employer shall not apply to the employee in respect of his employment by any other employee who is not a successor of the first mentioned in the same employment.

(8) Any tax code delivered to an employee in respect of any fiscal year or in respect of any period within any fiscal year, shall cease to apply at the end of that year and any employee who desires that a reduced deduction shall apply to him in respect of this subsequent fiscal year, or in respect of any period of that year, may deliver to his employer a further tax code declaration in accordance with the provisions of subsection (2) of this section.

Dependants for purposes of tax codes.

56. For the purposes of determining the tax code applicable to an employee the provisions of Section 27 of this Act, with any necessary modifications, shall apply to determine whether or not any person is deemed to be a dependant of the taxpayer at any time.

Power of Commissioner to grant relief from or vary amount of deductions and to specify and vary requirements under this Part.

57. (1) For the purpose of giving effect to this Part of this Act or for the purpose of determining any question arising under this part of this Act, the Commissioner may prescribe such requirements and procedures as he considers necessary or desirable, and may vary any of the requirements or obligations imposed under this part of this Act.

(2) Any decision or requirement of the Commissioner under subsection (1) of this section may be given in writing to the taxpayer or published in the Gazette.

Records to be kept by employer.

58. (1) Every employer who makes a payment of salary or wages to any employee shall keep a "Salary and Wages Payment and Tax Deduction Record" in respect of the employee, showing -

(a) the gross amount of the payments; and

(b) the tax code of the employee (if any); and

(c) the rate of the tax deduction; and

(d) the amount of the tax deduction (if any) made from the payment; and

(e) the amount of any other deductions (if any) made from the payment; and

(f) the total of the gross payments made to the employee from the commencement of the fiscal year or the date of his commencement as an employee if subsequently; and

(g) the total tax deductions made from payments made to the employee from the commencement of the fiscal year, or the date of his commencement as an employee if subsequently; and

(h) any other information which is required to be given therein by regulations made under this Act or by the Commissioner:

and shall enter the amounts specified in paragraphs (a) to (h) of this subsection in the record at the time of making of each payment.

(2) The record in respect of each employee shall be kept in duplicate; and

(a) the 1st copy in respect of each payment shall be delivered to the Commissioner with the payment of the tax deduction; and

(b) the 2nd copy shall be retained by the employer as part of his records.

Payment of tax deductions to Commissioner.

59. (1) Every person who makes a tax deduction from a payment of salary or wages shall -

(a) within 7 days from the end of the pay period pay to the Commissioner the amount of the tax deduction;

(b) not later than the 31st day of July in each year, or not later than 7 days after the cessation of the employment of any employee, deliver to each employee, or to that employee, a completed tax deduction certificate in a form authorised by the Commissioner;

(c) not later than the 31st day of July in each year deliver to the Commissioner a completed reconciliation statement in a form authorised by the Commissioner and accompanied by signed copies of all the tax deduction certificates to which that statement relates.

The executor or administrator of a deceased employer shall fulfil such of the obligations of the employer under this section as have not been fulfilled by the employer before his death.

Requirement to register.

60. Every person who becomes an employer after the commencement of this Act shall register with the Commissioner within 7 days of becoming an employer.

Employee to pay deductions to Commissioner.

61. Where for any reason a tax deduction is required to be made but is not made or is not made in full at the time of the making of any payment of salary or wages the employee shall within 7 days from the end of the pay period - 

(a) furnish to the Commissioner a completed return in the prescribed form of the payment; and

(b) unless the employee is exempted from liability to pay the same or is not liable to pay the same, pay to the Commissioner an amount equal to the total of the tax deductions that should have been made and were not made.

Tax deductions to be credited against tax assessed.

62. Every employee shall forward to the Commissioner together with his return for any fiscal year, all tax deduction certificates delivered to the employee in respect of tax deductions made in the fiscal year from payments of salary or wages made to the employee and the Commissioner shall credit the amount of any tax deductions shown in the certificates against the tax (if any) payable by the employee in respect of chargeable income for the fiscal year.

Tax deduction where no certificate available.

63. Where the Commissioner is satisfied that no tax deduction certificate is available, and is satisfied as to the amount of the deductions made he may apply the provisions of Section 62 of this Act in the same manner as if the certificate had been received by him.

Amounts deducted to be held in trust for Crown.

64. (1) All amounts deducted by any employer pursuant to this part of this Act and all amounts required to have been deducted pursuant to this part of this Act shall for the purpose of this section be deemed to have been deducted and any such amount deducted or deemed to have been deducted shall be deemed to be held in trust by that employer for the Crown and shall not be subject to attachment in respect of any debt or liability of that employer and in the event of any liquidation, assignment or bankruptcy the said amount shall form no part of the estate in liquidation, assignment or bankruptcy but shall be paid in full to the Commissioner before any distribution of the property is made.

(2) The provisions of subsection (1) of this section shall also apply to any additional tax assessed under Section 39 of this Act, or any penalty, assessed under Section 41 of this Act, in respect of any failure to deduct or to account for any tax deductions deemed to have been held in trust under subsection (1) of this section, as if that additional tax or penalty were tax deductions.

Employer failing to make tax deductions.

65. (1) Where an employer fails to make any tax deduction in accordance with his obligations under this Part of this Act, the amount in respect of which default has been made shall constitute a debt payable by the employer to the Commissioner and shall be deemed to have become due and payable to the Commissioner forthwith on such failure.

(2) The right of the Commissioner to recover from the employer the amount in respect of which default has been made shall be in addition to any right of the Commissioner to recover that amount from the employee under this Part of this Act; and nothing in this part of this Act shall be construed as preventing the Commissioner from taking such steps as he thinks fit to recover that amount from the employer and from the employee concurrently, or from recovering that amount wholly from the employer or from the employee or partly from the employer and partly from the employee.

(3) Where any amount, including any additional tax or any penal tax, recoverable in accordance with this Act from the employee, is in fact paid by the employer, the amount so paid may be recovered by the employer from the employee.

Unpaid tax deductions etc. to constitute a charge on employer's property.

66. Where an employer fails wholly or in part to make any tax deduction in accordance with his obligations under this part of this Act, or is liable to pay any sum to the Commissioner under this part of this Act, an amount equal to the total for the time being unpaid to the Commissioner in respect of that tax deduction or sum (including any additional tax or penal tax), or in respect of any judgment obtained therefor (including any costs, fees or expenses included in the judgment or otherwise payable by the employer to the Commissioner in respect thereof), shall be recoverable from the employer as if that amount were taxes assessed on that employer, and the provisions of Section 84 of this Act, with any necessary modifications, shall apply thereto.

MISCELLANEOUS PROVISIONS

Agreement not to make tax deduction to be void.

67. Where a tax deduction is required to be made under the provisions of this part of this Act, any agreement not to make the tax deduction in accordance with those provisions shall be void.

Amount of tax deductions deemed to be received by employee.

68. Where any amount has been deducted from a payment of salary or wages by way of tax deduction under this part of this Act, the amount so deducted - 

(a) as between the employer and the employee, shall be deemed to have been received by the employee at the time of the payment of salary or wages;

(b) for the purposes of this Act, shall be deemed to have been derived by the employee at the same time and in the same way as the residue of the said payment.

Application of Act to tax deductions.

69. Subject to this part of this Act, the provisions of this Act shall apply with respect to every amount that any person is liable to pay to the Commissioner under this part of this Act, whether as tax deductions or otherwise, as if the amount were income tax.

PART VI - WITHHOLDING TAX

Liability for tax on withholding income.

70. (1) This section shall apply to income (in this Act referred to as withholding income) being income that consists of -

(a) interest (not being interest derived from deposits with a savings bank account), dividends or royalties derived from the Kingdom; (Amended by Acts 4 of 1986 and 3 of 1988.)

(b) income derived from any lease of land within the Kingdom;

not being income that is exempt from tax. (Amended by Act 4 of 1983.)

(2) Every person other than an individual who is not resident in Tonga who derives withholding income shall be liable to pay withholding tax thereon as follows:

(a) in every case where income of any of the kinds referred to in subsection (1)(a) of this section is derived by a person who is not resident in the Kingdom, the amount of the withholding tax shall be 15 per cent of the gross amount of that income;

(b) in every other case the amount of the withholding tax shall be 3 per cent of the gross amount of the withholding income. (Amended by Act 5 of 1985.)

Deduction of withholding tax.

71. (1) Except as otherwise provided in this section, where a person makes a payment of withholding income he shall, at the time of the payment, make a deduction of withholding tax therefrom of an amount determined in accordance with Section 70 of this Act.

(2) Where a payment of withholding income of the kind referred to in Section 70(1)(b) of this Act is paid to the Minister of Lands in accordance with the provisions of the Land Act the Minister of Lands shall make a deduction of withholding tax therefrom of an amount determined in accordance with Section 70 of this Act.
Cap. 132.

(3) Where a person makes a deduction of withholding tax under this section from a payment of withholding income, he shall at the time of making the payment advice the person to whom the payment is made, in writing of the amount of the deduction made by him from the payment.

Payment of deductions of withholding tax to Commissioner.

72. Every person who makes deductions of withholding tax from payments of withholding income shall pay to the Commissioner the amount of the deduction within 7 days from the date on which he has made any such payment, or within such further time as the Commissioner thinks fit in any case or class of cases.

Statement to be delivered to Commissioner.

73. Every person who in any fiscal year makes any deduction of withholding tax shall, not later than the 31st day of July next after the end of that year -

(a) deliver to the Commissioner a statement showing particulars of the withholding income, the persons entitled to receive that income, and the withholding tax relating thereto;

(b) deliver to each person in respect of whom such a deduction of withholding tax has been made a completed withholding tax statement in a form authorised by the Commissioner.

Withholdings tax to be final in certain cases.

74. Notwithstanding anything in this Act, withholding income of any of the kinds referred to in section 70(1)(a) of this Act derived by a non-resident shall not be included in the assessable income of that person and the amount of income tax for which that person is liable in respect of the amount of that withholding income in any fiscal year shall be determined exclusively and finally by the total amount of withholding tax for which that person is liable in accordance with Section 70(1)(a) of this Act.

Annual tax on withholdings income in certain cases.

75. Withholding income (not being income of any of the kinds referred to in section 70(1)(a) of this Act derived by a non-resident) derived by any person in any fiscal year shall be included in the assessable income of that person for that year, and against the income tax assessed in respect of that assessable income tax for that fiscal year there shall be allowed a credit equal to the withholding tax paid to the Commissioner in respect of that withholding income.

Remedies of Commissioner.

76. (1) Where for any reason a deduction of withholding tax is not made or is not made in full, or any such deduction is not paid to the Commissioner in accordance with this part of this Act, the Commissioner may exercise all or any of the remedies available to him under Part V of this Act as if -

(a) the payment of withholding income was a payment of salary or wages;

(b) the withholding tax deduction were a tax deduction;

(c) the person making the payment were an employer; and

(d) the person deriving the payment were an employee.

(2) Subject to this part of this Act, the other parts of this Act, as far as they are applicable and with the necessary modifications, shall apply with respect to withholding tax as if it were income tax levied under section 3 of this Act.

PART VII. - OBJECTIONS TO ASSESSMENTS

Objection to assessments.

77. (1) Any person objecting to the amount at which he is assessed or considering that he has been wrongfully assessed may, personally or by his agent, within the time determined in the notice of assessment give notice in writing to the Commissioner in Form 2 of the Second Schedule to this Act that he considers himself aggrieved for the cause aforesaid: otherwise such person's right of appeal shall cease and the assessment made shall stand and be valid and binding notwithstanding any defect, error or omission that may have been made therein or in any proceeding required by this Act or any regulation hereunder:

Provided that the Commissioner, either before or after the expiry of the time so determined, may in his discretion give a taxpayer further time in which to appeal.

(2) The Commissioner shall consider such objection and may either allow or disallow it either wholly or in part.

(3) The Commissioner shall give a written notice to the person objecting of his decisions upon any objection and shall state in such notice the time within which such person may exercise the right of further appeal as provided in subsection (4) of this section.

(4) Any person objecting to the decision of the Commissioner under subsection (3) of this section may, within the time determined under such subsection (3), give notice to the Commissioner in Form 3 of the Second Schedule hereto that he desires to appeal from such decision to the Court of Review, and such appeal shall be heard and determined as hereinafter provided.

Court of Review.

78. (1) His Majesty in Council may appoint a person of legal knowledge and experience, as Chairman, together with such other persons not exceeding four in number for the purposes of hearing and determining appeals from the assessment of the Commissioner, and the persons so appointed shall constitute a Court to be called the Court of Review, and the said Court of Review shall for the purpose of hearing and determining the appeals under this Act referred to it have powers and authority like to those vested in the Supreme Court as if the appeal were an action between the taxpayer and the Commissioner.

(2) The Chief Justice or Judge of the Supreme Court shall have power to make rules of court generally for regulating any matters relating to the practice and procedure of the said Court of Review or the fees to be charged and the costs of proceedings therein.

(3) His Majesty in Council may from time to time by Order-in-Council provide for all or any of the following matters -

(a) for the determining and defining of an area or areas in the Kingdom within which the Court of Review may be held;

(b) for the appointment of the place or places at which the said Court of Review shall be held within such area.

(4) Persons appointed as member of the Court of Review under subsection (1) of this section, may receive such remuneration by way of fees, salary or allowances as may be approved from time to time by His Majesty's Cabinet.

Date of sittings of Court of Review.

79. The Chairman of the Court of Review shall fix the date or dates of attendance at the various places appointed for the holding of the Court, and shall cause a notice of such dates to be sent to every appellant:

Provided that such Court of Review shall not be held within 15 days of the giving of such notice.

Powers of Court of Review.

80. (1) The Court of Review after hearing any evidence adduced and upon such other inquiry as it considers advisable, shall determine the matter and confirm or amend the assessment accordingly.

(2) The Court of Review may increase or reduce the amount of the assessment in any case before it.

(3) In any case where the appeal is unsuccessful the Court of Review may direct that the person who appealed shall pay the cost or costs or parts of the costs of such appeal, and if such appeal is successful, the Court of Review may recommend that the costs or any part thereof be paid by the Crown.

(4) The Court of Review shall send a copy of its decision by registered mail to the Commissioner and to the taxpayer or his agent in writing.

Ex-Parte Action.

81. If the taxpayer fails to appear either in person or by agent the Court of Review may proceed ex-parte or may defer the hearing.

Appeal to Supreme Court.

82. If the taxpayer is dissatisfied with the decision of the Court of Review he may, within 30 days after the date of the decision, give a written notice to the Commissioner in Form 4 of the Second Schedule hereto that he desires to appeal from such decision. If the taxpayer gives such notice or if the Commissioner himself is dissatisfied with the decision of the Court of Review, the Commissioner shall refer the matter to the Supreme Court for final hearing and determination. Such reference may be made in Form 5 of the Second Schedule hereto, and the Commissioner shall notify the taxpayer in writing that he has made such reference. On any reference the Supreme Court shall hear and consider such matter upon the papers and evidence referred and upon any further evidence which the taxpayer or the Crown produces under the direction of the said Court.

Proceedings generally.

83. (1) No assessment shall be set aside by a Court upon the ground that there has been any error or omission in connection with any proceedings required to be taken under this Act or any regulation hereunder, but such Court in any case that may come before it may determine the true and proper amount of tax to be paid under this Act.

(2) On the hearing and determining of all objections to assessments under this Act the onus of proof will be on the taxpayer.

(3) All proceedings of the Courts under the provisions of this Act shall be held in camera if so requested by the taxpayer.

PART VIII. - RECOVERY OF TAX

Taxes a debt to the Crown.

84. (1) The taxes and all interest and costs assessed shall be recoverable as a debt due to the Crown from the person on whom it is assessed or imposed.

(2) Any tax, interest, costs or penalty that may be assessed, recovered or imposed under this Act may, at the option of the Commissioner, be recovered in a Court of competent jurisdiction of the Kingdom in the name of the Crown.

(3) Taxes, interest, costs and penalties imposed under this Act shall be a lien and charge upon the property, whether real or personal, moveable or immoveable, of the person liable to pay the same.

Deduction of tax from payment due to defaulters.

85. (1) Where any taxpayer has made default in the payment of any tax payable by him for any fiscal year, the Commissioner may from time to time by notice in writing require any person to deduct from any amount payable or to become payable by that person to the taxpayer such sum as may be specified in the notice, and to pay every sum so deducted to the Commissioner to the credit of the taxpayer within such time as may be specified in the notice.

(2) This section shall bind the Crown.

(3) Where any notice under this section relates to any salary or wages, the sums required to be deducted therefrom shall be computed so as not to exceed a deduction at the rate of one-twentieth per week of the tax due and payable by the taxpayer at the date of the notice, or at the rate of 20 per cent of the salary or wages, whichever rate is the less.

(4) Any notice under this section may be at any time revoked by the Commissioner by a subsequent notice to the person to whom the original notice was given (hereinafter referred to as the debtor), and shall be so revoked at the request of the taxpayer at any time when the Commissioner is satisfied that all tax then due and payable by the taxpayer has been paid, and that the Commissioner holds to the credit of the taxpayer an amount not less than the amount of the tax (if any) to become due and payable by him during the then current calendar year.

(5) A copy of every notice given under this section and of the revocation of any such notice shall be given to the taxpayer by the Commissioner.

(6) Whenever pursuant to a notice under this section any deduction is made from any amount payable to any taxpayer the taxpayer shall be entitled to receive from the debtor a statement in writing of the fact of the deduction and of the purpose for which it was made.

(7) The sum deducted from any amount pursuant to a notice under this section shall be deemed to be held in trust for the Crown, and, without prejudice to any other remedies against the debtor or any other person shall be recoverable in the same manner in all respects as if it were tax payable by the debtor.

(8) Every person commits an offence and shall be liable on conviction to a fine not exceeding $100 who -

(a) fails to make any deduction required by a notice under this section to be made from any amount payable by him to a taxpayer;

(b) fails after making any such deduction to pay the sum deducted to the Commissioner within the time specified in that behalf in the notice.

Recovery of tax paid by one person on behalf of another.

86. Every person who in pursuance of this Act pays any tax for or on behalf of another person shall be entitled to recover the amount so paid from the other person as a debt, or to retain or deduct that amount out of or from any money which is or becomes payable by him to that other person.

PART IX. - PENALTIES AND OFFENCES

Offences under this Act.

87. Any person who wilfully with intent to evade or assist any other person to evade any tax imposed by this Act -

(a) omits from a return made under this Act any income which should be included; or

(b) makes any false statement or entry in any return made under this Act; or

(c) gives any false answer whether verbally or in writing to any question or request for information asked for or made in accordance with this Act; or

(d) prepares or maintains or authorises the preparation or maintenance of any false books of account or other records or falsifies or authorises the falsification of any books of account or records; or

(e) makes use of any fraud, art, or contrivance whatsoever or authorises the use of any such fraud, art or contrivance,

shall be guilty of an offence and shall for each such offence be liable to a fine of $200 and double the amount of tax for which such person is liable under this Act for the fiscal year in respect of or during which the offence was committed, or to imprisonment for 6 months or to both such fine and imprisonment:

Provided always that the Commissioner may compound any offence under this subsection and may before judgment stay or compound any proceedings thereunder.

Limitation to time.

88. Proceedings for any offence under this Act may be instituted at any time within 3 years after the commission of the offence.

PART X. - GENERAL

Power to require information.

89. (1) If the Commissioner in order to enable him to make an assessment or for any other purpose desires any information or additional information or a return from any person who has not made a return or a complete return, he may demand in writing from such person such information, additional information or return, and such person shall deliver to the Commissioner such information, additional information or return within the period of time determined by the Commissioner in such written demand.

(2) For the purposes of any proceedings taken under this Act the facts necessary to establish compliance on the part of the Commissioner with the provisions of this section as well as default thereunder shall be sufficiently proved in any court of law by the affidavit of the Commissioner or any other responsible officer of the Department of Inland Revenue. Such affidavits shall have attached thereto as an exhibit a copy or duplicate of the said demand in writing.

(3) The Commissioner may require the production on oath or otherwise by the taxpayer or by his agent or by any person or partnership holding or paying or liable to pay any portion of the income of any taxpayer of any letters, accounts, invoices, statements or other documents whatsoever.

(4) The Commissioner may require and demand the production on oath or otherwise by any person or by his agents of any letters, accounts, invoices, statements financial or otherwise, books or other documents held by such person or agent for the purpose of arriving at the tax believed to be payable by any other person, and the same shall be produced within the time determined by such demand.

(5) Every person, who, in whatever capacity acting, is in receipt of any money, thing of value or of profit or gains arising from any source of or belonging to any other person shall, when required to do so by notice from the Commissioner, prepare and deliver to the Commissioner any information within the time determined by such notice.

(6) The Commissioner or any officer authorised in that behalf by the Commissioner may make such enquiry as he may deem necessary for ascertaining the income of any taxpayer, and for the purposes of such enquiry the Commissioner or any officer duly authorised in that behalf by him may summon before him and examine any person whom the Commissioner or such officer authorised by him deems capable of giving information, and for the purposes of such enquiry by the Commissioner shall have all the power and authority of a Magistrate appointed under the Magistrates' Courts Act and the provisions of such Act in so far as they are applicable shall apply.

(7) If a taxpayer fails or refuses to keep adequate books or accounts for tax purposes, the Commissioner may require the taxpayer to keep such records and accounts as he may prescribe.

Penalty for failure to provide information etc.

90. For every default in complying with the provisions of section 89 of this Act the persons in default shall each be liable to a fine of $2 for each day during which the default continues.

Regulations.

91. His Majesty in Council may make regulations deemed necessary for carrying this Act into effect, and may therefore authorise any of the officers in that service to exercise such of the powers conferred by this Act upon the Commissioner as may, in the opinion of His Majesty in Council, be conveniently exercised by such officer.

PART XI. - ADMINISTRATION

Appointment of Commissioner of Inland Revenue.

92. For the due performance of the provisions of this Act His Majesty in Council may appoint a person to be called the Commissioner of Inland Revenue who shall administer this Act and be responsible for the collection of tax in accordance with the provisions hereof, and shall also perform such other duties as His Majesty in Council shall assign to him and shall receive such salary as shall be provided in the Annual Estimates of the Kingdom.

Appointment of Deputy Commissioner and subordinate staff.

93. His Majesty's Cabinet may appoint a Deputy Commissioner of Inland Revenue and such officers to assist the Commissioner and Deputy Commissioner of Inland Revenue as he may consider necessary for the efficient execution of the provisions of this Act, and such officers shall hold office upon such items as His Majesty's Cabinet may sanction and shall receive remuneration at such rates and in such manner as may be provided in the Annual Estimates of the Kingdom.

Secrecy.

94. (1) No person employed in the Government shall communicate or allow to be communicated to any person not legally entitled thereto any information obtained under the provisions of this Act, or allow any such person to inspect or have access to any written statement furnished under the provisions of this Act.

(2) Any person violating any of the provisions of this section shall be guilty of an offence and upon conviction shall be liable to a fine not exceeding $200 or to imprisonment for a term not exceeding 6 months, and shall be dismissed instantly from service in the Government.

Oath of office.

95. Every officer appointed under the provisions of section 84 and 85 of this Act shall take an oath of office in Form 1 of the Second Schedule hereto before performing any duties under this Act, and such oath may be administered by any Magistrate.

Powers of Commissioner.

96. The Commissioner shall have the administration of this Act and the control and management of all collection of the tax levied under this Act and of all matters incident thereto and the officers and the persons employed in that service.

AUDIT

Duties of Auditor.

97. (1) The accounts of the receipt of revenue under this Act shall be examined by the Government Auditor in order to ascertain that adequate regulations and proceedings have been framed to secure an effective check of the assessment, collection and proper allocation of revenue, and the Government Auditor shall satisfy himself that any such regulations and procedures are being duly carried out.

(2) The Government Auditor shall make such examination as he thinks fit with respect to the correctness of the sums brought to account in respect of such revenue as aforesaid.

(3) The Government Auditor shall take an oath of secrecy as in Form 6 of the Second Schedule hereto before exercising any powers or performing any duty under the provisions of this section, and such oath shall be administered by a Magistrate.

(4) For the purpose of this section "Government Auditor" includes any officer of the Audit Department authorised by the Prime Minister to exercise the powers and perform the duties imposed upon the Government Auditor by the provisions of this section.

PART XII - MISCELLANEOUS

Transitional provisions.

98. (1) Notwithstanding any other provision of this Act, tax which, under the law in force immediately prior to the commencement of this part of this Act, would have been assessed, levied and paid upon the income of any person, other than a company, for the period commencing on the 1st day of January 1977 and ending on the 30th day of June 1977 shall be deemed to have been assessed and levied, but, subject to this section, is hereby discharged.

(2) Tax shall not be discharged as aforesaid unless the person concerned, being a person who during the said period derived income other than from salary or wages, has delivered to the Commissioner a return of income in respect of the said period.

(3) If for any reason the Commissioner is of the opinion that the taxpayer is at an unfair advantage or disadvantage for the purposes of this section, the Commissioner may at any time make such adjustment (including the reopening of any assessment) for the purposes of this section as he considers equitable to meet the special circumstances of the case.

(4) Notwithstanding any other provision of this Act, so much of any loss which, had this section not come into force, would have been allowed to be set off in computing the income of any person who carried on any business, either solely or in partnership, in the period commencing on the 1st day of January 1977 and ending on the 30th day of June 1977, shall not be set off in computing the income of that person for any fiscal year.

Application to petroleum operations.

99. (1) *The Income Tax Act shall not apply to the taxation of the revenue from petroleum operations in Tonga, unless the parties to a petroleum agreement otherwise agree, in which case it may, to the extent specified in the said agreement, be applicable to such operations.
*This section was originally enacted as part of Act 9 of 1985.

(2) In this section -

"petroleum operations" means searching for and winning or obtaining of petroleum in Tonga by or on behalf of a company for its own account by any drilling, mining, extracting or other like operations or process in the course of a business carried on by that company engaged in such operations, and all operations incidental thereto, and/or any sale or disposal by any petroleum company or companies or any purchase exclusively for sale by way of export by any other company or companies of petroleum so won or obtained, and includes the transportation within Tonga by or on behalf of that company of petroleum so won or obtained to any point of sale or delivery or export, but does not include:

(a) any transportation of petroleum outside Tonga;

(b) any process of refining at a refinery; or

(c) any dealings with products so refined.

Repeal and savings.

100. (1) The following enactments are hereby repealed and shall cease to form part of the law of the Kingdom -

(a) The Poll Tax Act;

(b) The Copra Tax Act;

(c) The Poll Tax Regulations (7/11/35 and G. 161/35).

(2) The following enactments are also repealed and shall cease to form part of the law of the Kingdom -

(a) The Income Tax Act;

(b) The Income Tax Amendment Act (No. 8, 1971);

(c) The Income Tax Amendment Act (No. 15, 1972);

(d) The Income Tax Amendment Act (No. 17, 1973);

(e) The Income Tax Amendment Act (No. 8, 1974).

(3) The provisions hereby repealed shall continue to apply for all purposes whatsoever in respect of any tax whether already assessed or paid or still assessable or payable in or for the year ended on the 31st day of December 1976 or in or for any previous year.

(4) Where in this Act any provisions relating to the constitution of districts or offices, the appointment of officers, the making or issuing of Proclamations, orders, warrants, certificates, rules, regulations, oaths or other similar exercise of statutory powers substantially correspond to provisions in any of the Acts repealed by subsection (2) of this section, all such powers exercised under those repealed Acts and in force at the time of the repeal shall in so far as they are not inconsistent with this Act, continue in the like operation and effect as if they have been exercised under the corresponding provisions of this Act.

(5) Subsection (1) of this section shall come into force on the 1st day of January 1977.

SCHEDULES

FIRST SCHEDULE

BASIC RATES OF TAX

Part A

1. For the purposes of this part of this Schedule, "taxable income" means income on which tax is payable.

2. On all income assessable under section 34 of this Act to a company deriving insurance premiums the basic rate of tax for every $1 of the taxable income shall be 2 ½ seniti.

3. On all income assessable under Section 35 of this Act to a non-resident company deriving income in accordance with that section the basic rate of tax for every $1 of the taxable income shall be 1 ¼ seniti.

4. On all income assessable under this Act to an export oriented company designated under section 36 of this Act the basic rate of tax for every $1 of the taxable income shall be 17 seniti. (Inserted by Act 5 of 1985.)

5. (1) For the fiscal year ending during the calendar year 1977 and in every subsequent fiscal year the basic rates of tax for any income derived by a company (other than income included within clause 2 or clause 3 or clause 4 of this part of this Schedule) shall -

(a) in the case of a resident company, be a rate of 15 seniti for every T$1.00 for the first T$100,000 net profit and a rate of 30 seniti for every T$1.00 for any amount above the first T$100,000 net profit; (Amended by Act 4 of 1986 and Act 3 of 1987.)

(b) in the case of a non-resident company be a rate of 37½ seniti for every T$1.00 for the first T$50,000 net profit and a rate of 42½ seniti for every T$1.00 for any amount above the first T$50,000 net profit. (Substituted by Act 16 of 1980.)

(2) Unless otherwise exempted the rates under paragraph (a) shall apply to a statutory body. (Inserted by Act 16 of 1980.)

6.	(a) On all income the basic rate of tax for every T$1 of the taxable income shall in the case of all taxpayers, other than companies, be at the rate of 10 seniti.

(b) For the purpose of calculating tax deductions by employers from payments of salary or wages where the payment is for a weekly pay period or pay periods longer than a week, the basic tax deduction shall be at the rate of 10 seniti for every T$1 of taxable income after allowing for declared dependants in accordance with Part B of this Schedule. (Substituted by Act 4 of 1986.)

FIRST SCHEDULE

PART B
ALLOWANCES FOR DEPENDANT REFERRED TO IN PARAGRAPH 6(b) OF PART A
(Substituted by Act 4 of 1986.)

The rate of tax shall be 10 seniti on every T$1 of chargeable income in excess of the allowances shown below.

Number of dependants
of the taxpayer	0	1	2	3	4	5	
			(T$)				
Allowances for - 							
daily wage 	4.38	5.21	6.03	6.85	7.67	8.49	
weekly wage 	30.77	36.54	42.31	48.08	53.85	59.62	
two weekly wage 	61.54	73.08	84.62	96.15	107.69	119.23	
half monthly wage 	66.67	79.19	91.67	104.17	116.67	129.19	
monthly salary 	133.33	158.33	183.33	208.33	233.33	258.33	

SECOND SCHEDULE

FORM 1
(Section 95)

THE INCOME TAX ACT

I, ............................................................................... make oath and swear that I will faithfully and honestly fulfil the duties which devolve upon me as a member of the staff of the Commissioner of Inland Revenue under the Income Tax Act.

Sworn before me this ............ day of ........................................ 19........

……….….....................................
Magistrate.

__________________________________________________________

FORM 2
(Section 77)

THE INCOME TAX ACT

In the matter of the assessment of .....................................................................................................

To the Commissioner of Inland Revenue.

I hereby give notice that I object to the amount at which I am assessed, for the following reasons - 
........................................................................................................................................................................................................................................................................................................................
(here state the reasons briefly)

(or) I am not liable to taxation under the above Act for the following reasons - 

………………………………………………………………………………………………………………………………………………………………………………………………………………
(here state reasons briefly)

Dated this ........................... day of ……………………........................................................ 19......

…………………………………………….
Signature.
________________________________________________________________________

FORM 3
(Section 77)

THE INCOME TAX ACT

In the matter of the assessment of .....................................................................................................

To the Commissioner of Inland Revenue.

I hereby give notice that I am dissatisfied with your decision in this matter for the following reasons - 

........................................................................................................................................................................................................................................................................................................................
(here state reasons briefly)

and that I desire to appeal to the Court of Review.

Dated this ............................. day of …………….................................................................. 19......

……………………………………….
Signature.

_______________________________________________________________________

FORM 4
(Section 82)

THE INCOME TAX ACT

In the matter of the assessment of .....................................................................................................

To the Commissioner of Inland Revenue.

I hereby give notice that I am dissatisfied with the decision given by the Court of Review in this matter for the following reasons - 

........................................................................................................................................................................................................................................................................................................................
(here state reasons briefly)

and that I desire to appeal to the Supreme Court of Tonga.

Dated this ................................. day of .................................................................................. 19......

………………………………………
Signature.

__________________________________________________________________

FORM 5
(Section 82)

THE INCOME TAX ACT

In the matter of the assessment of .....................................................................................................

By virtue of the powers vested in me in this behalf under the Income Tax Act, I hereby refer the appeal of ............................................................................................................................................ (or my appeal) against the decision of the Court of Review to the Supreme Court of Tonga for adjudication thereon, and enclose herewith the said decision and other papers relating to the matter.

Dated this .......................... day of ......................................................................................... 19......

…..………………………………………
Commissioner of Inland Revenue.

To the Registrar of the Supreme Court,
TONGA.

____________________________________________________________

FORM 6
(Section 97)

THE INCOME TAX ACT

I, ................................................................................................................................ make oath and swear that I will not communicate or allow to be communicated to any person not legally entitled thereto any information obtained under the provisions of the Income Tax Act, or allow any such person to inspect or have access to any written statement furnished under the provisions of the said Act.

Sworn before me this .............................. day of ................................................................... 19......

………………………………….
Magistrate.

_____________________________________________________________

CHAPTER 68

SUBSIDIARY LEGISLATION

SECTION 6 - Depreciation Instructions

Issued under section 6(2) (a)

G. 398/78, G.S. 7/82, G.S. 1/84

The rates to be allowed for deductions in respect of depreciations are as follows with effect from 1st January 1977:

	Rate	
Accounting Machine	10%	
Aerated Waterplant and Machinery	10%	
Bicycles	Replacement	
Bicycles motor powered	20%	
Boilers, steam	10%	
Buildings	5%	
Buses, motor	20%	
Carts	10%	
Casks	Replacement	
Cabinets, iceless in factories	20%	
Commercial Aircraft	25%	
Cookers, electric	10%	
Copra driers (pale pale)	10%	
Copra driers (hot air)	20%	
Electric light installations	10%	
Electrical Appliances (general	10%	
Electronic Computers	50%	
Fencing	Replacement	
Furniture & Fittings	10%	
Implements (small items requiring		
frequent renewal)	Replacement	
Lorries, motor-powered	25%	
Machinery, sewing (factory)	10%	
Machinery (Nos)	10%	
Machinery electric (Nos)	10%	
Machinery gas driven	20%	
Motor Cars and Taxis	25%	
Ovens (Nos)	20%	
Plant & Machinery (general & not		
otherwise provided for)	10%	
Projectors	10%	
Pump, petrol	5%	
Pump light working	5%	
Pump heavy working	20%	
Refrigerators	10%	
Sacks, copra 	Replacement	
Seating, cinema	10%	
Tools, loose	Replacement	
Tarpaulins	Replacement	
Tanks, oil storage	10%	
Farming		
Steamboilers, engines and fixed plant fixed plant	10%	
Electrical installations	10%	
Petrol or oil drawn tractors and trailers	25%	
All other types of farming		
Machinery & implements	10%	
Loose tools	Replacement	

The calculation of all depreciations for Income Tax purposes is to be on the written down value of the asset.

NOTES:

(1) Any assets not included in the above schedule to be dealt with as follows - 

(a) Where cost $1,000 or less the rate to be at discretion of the Deputy Commissioner.

(b) Where cost over $1,000 to be decided by Privy Council.

(2) An approved industrial enterprise of a capital intensive nature may opt for depreciating its assets on an accelerated basis on lines similar to those quoted in the Industrial Development Incentives Act.

(3) Local shipping companies also to have the benefits of accelerated depreciation.

(4) Any asset disposed of at a price higher than the Written Down Value, the difference to be known as a Balancing Charge and regarded as Taxable Income. If the sale price or scrap value is lower than the Depreciated Value, the difference to be known as a Balancing Allowance and allowed as a deduction against Taxable Income.

Income Tax (Court of Review) Rules

Continued to have effect as if made under section 78(2)

ARRANGEMENT OF RULES

RULE

1. Short title.
2. Office.
3. Notice of appeal.
4. Sending notice.
5. Amendments.
6. Effects of appeal.
7. Fees.

SCHEDULE

----------------------------------------------

G.S. 61/69

Short Title.

1. These Rules shall be called the Income Tax (Court of Review) Rules and shall come into force on the publication hereof.

Office.

2. The Office of the Court of Review shall be at the Office of the Magistrates' Court, Nuku'alofa.

Notice of appeal.

3. Every appeal to the Court of Review shall be by notice of appeal to the Commissioner as therein provided and a copy thereof in the Office of the Court of Review.

Sending notice.

4. Every appellant on being notified by the Court of Review of the date appointed for the holding of the Court shall thereupon cause a notice of such date to be sent to the Commissioner.

Amendments.

5. The notice of appeal may be amended at any time by leave of the Court of Review on such items and conditions as the Court may think just.

Effects of appeal.

6. An appeal to the Court of Review shall have the effect of suspending the recovery of the assessment appealed against pending the decision of the Court of Review, unless for good cause the Court of Review, on the application of the Commissioner, otherwise orders.

Fees Schedule.

7. (1) The fees charged in the Schedule to these Rules shall be charged and paid into the Office of the Court of Review.

(2) The Court of Review may in its discretion allow for advocates costs the same amounts as are allowable under the Rules of the Supreme Court for the time being in force for advocates costs at trials before the Supreme Court; any reference in such Rules to the Registrar or to the Judge of the Supreme Court shall be deemed to be a reference to the Court of Review.

(3) The Court of Review may allow any other necessary costs or allowances as may seem to the Court fair and reasonable including costs or allowances for typing, clerical and other work which may from time to time be required by the Court of Review.

SCHEDULE

(Rule 7)

On filing copy of notice of appeal .......................................................................................... $2.00

On filing any other notice ....................................................................................................... $1.00

On filing an affidavit or any other document each...................................................................... .50

On sealing a writ of subpoena for a witness................................................................................ .75

Service of any process on each person served ............................................................................ .35

VENUE OF COURT OF REVIEW ORDER

Continued to have effect as if made under section 78(2)

G.S. 62/69

Short Title.

1. This Order in Council may be cited as the Venue of Court of Review Order.

Place of sitting.

2. The Court of Review shall sit for the hearing of an appeal, or for the hearing of any interlocutory application incidental to an appeal, in the Magistrates' Court at Nuku'alofa.

-----------------------------------------------