Notice: CT returns due on 28th of the month and NOT the 15th - starting when the Act is gazetted
Consumption Tax (CT) is a tax on the supply of most goods and services in Tonga. It is charged at a rate of 15%.
Registering for CT
If you are conducting a taxable activity and your annual turnover exceeds $100,000 you will need to register for CT.
To register you will need to fill in a CT registration form to get a Tax Identification Number (TIN).
You can find out more about CT by reading the CT Guidelines or arrange an appointment to meet with one of the Revenue Officers in the Compliance and Audit Division.
Completing your CT return
If you are registered for CT you will need to fill out a CT return by the 28th of every month.
In order to manage your CT obligations you need to keep good records. Learn about tax invoices and what other records you should keep, charging CT, the different methods of accounting for CT and what happens if you do not file a CT return or if you dispute an assessment.
Companies registered for CT have certain obligations. If you fail to meet these obligations, you could be charged penalties. This overview is an introduction into your obligations when you are CT registered.
A tax invoice is the legal document that shows the CT for a transaction. Read the CT Guideline to learn about tax invoices and how they should be written.
If you are CT registered you will need to charge 15% CT on the goods and services you provide in your business. There are different rates for different types of supplies. Find out about the rates for zero-rated, exempt and special supplies and what happens when you sell goods and services over the Internet.
When you are registered for CT you must:
Keep proper records
Charge CT on all taxable supplies of goods or services
Give CT invoices to other registered persons
Account for CT on taxable supplies made and received
Complete and file CT returns and pay any CT liability by the due date
Tell the RSD about any changes, such as changes in name and address.
You must keep sufficient records, so that you can readily determine your CT liability. Your records must be kept in the English or Tongan languages. Such records may include:
CT Credit and CT Debit notes
Motor vehicle log books
Accounting instruction manuals
Any other documents that verify transactions or entries in any books of account
How long must I keep my records?
You must hold these records in the Kingdom of Tonga for 5 years after the end of the CT tax period to which they relate.
How is CT calculated
Generally, the amount of CT payable for a CT period is the difference between the total output tax charged on taxable sales of goods and services and the total input tax credits allowable.
The CT that is charged to, or collected from customers is known as output tax. Businesses that are not registered for CT must not add CT to the price that they charge their customers.
Businesses that are registered for CT can claim a credit for the CT included in the cost of goods and services purchased or imported for use in their business. The CT credits that can be claimed back are known as input tax credits.
Total Output Tax - Total Input Tax Credits = CT Payable
If your input tax credits are greater than the output tax charged for the period, the credit balance will generally be carried forward, or in some special cases, refunded.
What is an exempt supply?
An exempt supply is a supply of goods and services that are specifically exempted from CT by an Order made by Chief Commissioner with the consent of Privy Council. CT cannot be charged on these supplies, nor can the supplier claim an input tax credit for any CT paid on inputs to these supplies. A person who only makes exempt supplies does not have to register for CT.
Exempt supplies include:
medical, dental or nursing services
a supply of prescription medicines
public transport services (this does not include the transport of passengers by tour operators)
lease of residential land for purposes.
Exempt imports include:
an import of goods that, if supplied in Tonga, would be an exempt supply (see above)
goods not exceeding $500 in value accompanying a person arriving by sea or air in Tonga
an import of goods by a diplomatic or consular mission
What is a zero rated supply?
A zero rated supply is a supply of goods or services that is subject to CT, but the rate of CT on that supply is zero %. The supplier can claim an input tax credit for any CT paid on inputs to zero rated supplies. The main zero rated supplies are:
international air/sea fares
electricity supplied for domestic purposes
the first 20 cubic meters of water per month supplied for domestic purposes.
the supply of goods as part of the transfer of a business, or part of a business, as a going concern.
What is the total value of my supplies?
The general rule is that the value of a supply is the consideration for the supply. Consideration for a supply is the total amount in money or kind paid or payable, directly or indirectly, for the supply. In calculating the consideration of a supply you must include any duties, levies, fees or charges paid or payable on or by reason of the supply. But remember that consideration is CT exclusive and in calculating the consideration for a supply the amount of CT paid on the supply must be excluded.
There is a special rule to calculate the total value of a supply where the consideration paid or payable for a supply is inclusive of CT and the separate amount of the price of the supply is not identified. The supply of goods or services is made for a tax inclusive amount. In such a case, the value of the supply is the price paid or payable reduced by an amount equal to the price multiplied by the tax fraction specified in the CT law.
The tax fraction formula is r/(100+r), where r is the rate of Consumption Tax applicable to the supply.
If a supply is made for a CT inclusive amount of $230 and the CT rate applicable is the standard 15% rate, then the value of the supply is calculated as follows:
$230 – ($230x 15/115) = $200
The consideration for the supply is $200 and CT payable is $30.
In order to calculate the total value of your taxable supplies for a period, you have to add the value of all taxable supplies that you have made in Tonga under each of your trading names used in your business enterprise. The calculation of your taxable supplies does not include the CT collected on sales to your customers. The value of supplies made outside Tonga, supplies that are not made in the course of carrying on your enterprise and exempt supplies are excluded from the calculation.
If you export your goods that are produced or acquired in Tonga, the CT rate is zero percent; that is the total CT charged to, and payable by, your customer will be zero. You can claim an input tax credit for the CT paid on goods and services used to provide/produce these goods.
Penalty for failure to apply for CT registration
If a person is required to register under either section 6(1) or (3) neglects or fails to register, the person is liable to a penalty under the CT law. The amount of penalty as prescribed by s 30 of the CT law is double the amount of the CT payable during the period commencing on the day on which the person was required to apply for registration and ending on the day the person files an application for registration or the person is registered by the Commissioner. The penalty imposed is recovered by issuing an assessment under the provisions of section 35 of the Revenue Services Administration Act, 2002. The penalty imposed may be remitted in the whole or in part by the Commissioner on his own accord or if an application is made to the Commissioner for remission
Other Administration Penalties
In addition, a person responsible to meet with CT obligations could be liable to administrative penalties under the Revenue Services Administration Act for neglecting or failing to do things required for the purposes of determining the correct CT. The situations where the Commissioner could impose an administrative penalty include the following:
If you fail to lodge a CT Return when required or any other form under the CT law
If you do not to pay the CT on time
If you neglect to maintain proper records of your taxable supplies
If you make a false or misleading statement in any other CT document
In addition to penalties, the CT law also prescribes various omissions as serious offences for which you can be prosecuted. The offences include the following:
You fail to apply for registration when the CT law requires you to be registered
As a registered person you fail to inform the Commissioner in writing of any change in any of these particulars: the business name, your business address, place of business, or nature of your business within 21 days after any such change
If you cease to carry on your business or your taxable supplies no longer exceed the $100,000 and you fail to apply for the cancellation of your registration
If after you have ceased to be registered for CT, you continue to advertise that you a registered person or
After your registration is cancelled, you fail to return the CT registration certificate to the Commissioner.
If any of the above events occur, you would commit an offence and if found guilty by the court as a result of prosecution undertaken by the Commissioner, you could be fined up to T$10,000 or sent to prison for a term not exceeding 2 years or both.
In addition to the above CT offences, you can also be prosecuted for other offences which are prescribed by the Revenue Services Administration Act which include the following:
You fail to deliver your CT return by due date
You fail to respond to a notice to pay outstanding CT
You neglect or fail to keep accounts and other records relating to your business
You do not provide the necessary facilities and assistance to an officer seeking to enter and search your business premises for business records, computer information etc
You fail to provide information sought from you or attend an interview requested by the Commissioner
The offences carry heavy monetary fines and in some cases you could go to prison.