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Summary of new tax law
14 July 2008

Link to La'o Hamutuk page of commentary and analysis on the 2008 tax reform law and its evolution.

La’o Hamutuk analyzes significant changes in the tax regime in Timor-Leste, known colloquially as the Tax Policy Reform, and published material when it becomes available.

Update November 2009

In November 2009, the World Bank released "Paying Taxes 2010", a report which measures the world's tax systems from the point of view of local businesses.

On pages 12-13, Timor-Leste is celebrated:

Timor-Leste was the top reformer in 2008/09. A new tax law came into force in July 2008, transforming the tax regime for businesses. It cut the profit tax rate from 30% to 10%, allowed all depreciable assets to be fully written off in the year of purchase and abolished the alternative minimum tax and the withholding tax on interest. Corporate income tax is now paid in quarterly rather than monthly instalments when turnover is less than $1 million, with simple rules for its calculation. The time required for paying taxes fell by 364 hours a year.

This would be funny if it weren't so sad.

According to page 88 of the report, Timor-Leste has by far the lowest "Total Tax Rate" for businesses in the world -- 0.2%. The next lowest is Vanuatu with 8.4%. Indonesia (around the global median) is 37.6%, while our other neighbor, Australia, taxes at 48.0%.

The World Bank lauds Timor-Leste for reducing the amount of time required to pay taxes, down to 276 hours per year. Vanuatu requires 120 hours, Indonesia 266 and Australia 107 hours. Dividing the time spent by the percentage tax paid, we can calculate that Timor-Leste's "taxpaying inefficiency" is 1380, Vanuatu 14.3, Indonesia 7.1, and Australia 2.2. In other words, Timor-Leste requires nearly a hundred times as much bureaucracy per dollar of taxes as Vanuatu, and more than 600 times as much as Australia. Is this something to be proud of -- no revenues to the state, but lots of wasted time for businesses?

No wonder the Government feels compelled to overstate the amount of domestic revenues in the 2010 State Budget.

When the proposed Tax Reform law was being debated in March 2008, La'o Hamutuk's submission doubted that the tax cuts would benefit local people, especially the majority who are less than affluent. Unfortunately, we turned out to be correct.


The simplification of tax administration and collection has been in process for some time and was initially proposed to create a more efficient system of tax administration and collection. This would benefit clients (less red tape), officials (less complications), and government (better oversight). Later, more and more focus was put on the overhaul of the tax regime with the hope of attracting foreign investment to stimulate economic growth. For example, the 2007 Economic and Social Development Brief by the ADB, WB and IFC states: “In light of the comfortable fiscal position and prospects, reducing and simplifying import tariffs and income taxes for the non-oil economy (but not user and utility charges) may be warranted as part of an overall effort to improve the attractiveness of Timor-Leste as a destination for private investment.” The same sentiments are reflected in the current move to revise the tax laws.

Early 2007 a Tax Policy Committee considered tax plans from then Prime Minister Ramos-Horta and recommendations from IMF and proposed a reform of non-oil taxation aiming to “facilitate investment and job creation; Reduce the tax burden on wage earners and consumers, especially the poorest; Lower compliance costs and minimize evasion; Maintain systems so that additional revenue can be raised if required in the future.” The Council of Ministers revised parts of this proposal to be even more foreign-investment friendly, approving the Taxes and Duties Act 2008 (English or Portuguese) on 20 February 2008.

La’o Hamutuk and other organizations campaigned against many parts of this Act, arguing that it makes Timor-Leste almost solely dependent on petroleum revenues but, in a country in which most people live by subsistence farming, it does not actually help the poor. In a Public Meeting held by La’o Hamutuk on 21 April, even members of the original Tax Policy Committee distanced themselves from the current radical reform. Furthermore, creating a healthy business-enabling climate in a country like Timor-Leste is much more dependent on security, stability, and transparency, in combination with a service-oriented business climate, rather than on reduction of taxes. Probably the best argument given was the business woman who spoke at the presentation of the draft State of the Nation report on Private Sector Development on 24 April, saying she did not care if her taxes were lowered if it still meant she had to spend days trying to pay them.

Nevertheless, Parliament passed the law in early June 2008 without making any significant changes besides not making taxes (other than annual taxes) retroactive to the beginning of 2008. President Ramos-Horta promulgated it as Law No. 8/2008 on 25 June, and it was published in the Jornal da Republica on 30 June.

On 14 July, the Timor-Leste Revenue Service published in national newspapers a page filling summary, in four languages, of significant changes resulting from this Act. The TLRS has also updated the tax system information brochures on its website.

Summary of changes in new tax law

Wage Income Tax

1 July 2008


$0 to $500

no tax

$501 and over


Non Residents


Services Tax

1 July 2008

Hotel, bar, restaurant, telecommunication


Designated services now exclude transport rental services

Withholding Tax

1 July 2008

Prizes, lotteries, royalties (reduced from 15%)


Land or house rent


Payments to non-residents (reduced from 20%)


Services: building and construction


Services: construction consulting


Services: air and sea transportation


Services: mining or mining support


Interests and dividends no longer subject to withholding tax

Income Tax

1 January 2008

Resident natural person


$0 to $6000


Over $6000


Non-resident natural person


Legal person


Minimum income tax has been abolished

Both monthly and quarterly payment requirements are lowered to 0.5% of total turnover (was 1%)

1 July 2008


Trading stock inventory: immediate and full deduction is now allowed regardless whether goods have been sold or not in that year

1 January 2008

Depreciation: immediate and full deduction is allowed by way of depreciation rate of 100%. Business is allowed depreciation deduction for undeducted amount as at December 2007 (first year new law only). Applies to amortization of intangible assets and expenditure too.

1 January 2008

Interest: no longer deductable, unless by financial institution

1 January 2008

Losses: deductable in following year and can be carried forward indefinitely

1 January 2008

Import Duty

1 July 2008

Duties based on “customs value”, meaning fair value in Timor-Leste (reduced from 6%)


Sales Tax

1 July 2008

Value used for tax is equal to: customs value + import duty + excise tax payable (reduced from 6%)


Excise Tax

Import: Value used for tax is equal to: customs value + import duty

Local: fair market value at time of removal from warehouse

1 July 2008

List of excisable goods:


Wine etc.

Other alcohol

Gasoline, diesel, etc.

Tobacco etc.

Cigarette lighters, smoking pipes

Arms and ammo

Vehicles (on value in excess of $75,000)

Boats and planes (private)










The Timor-Leste Institute for Development Monitoring and Analysis (La’o Hamutuk)
Institutu Timor-Leste ba Analiza no Monitor ba Dezenvolvimentu
Rua dos Martires da Patria, Bebora, Dili, Timor-Leste
P.O. Box 340, Dili, Timor-Leste
Tel: +670-3321040 or +670-77234330
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