Subject: World Bank lauds tax cuts in TL
The World Bank has just released "Paying Taxes 2010", a report which measures the world's tax systems from the point of view of local firms complying with different tax laws and regulations. The full report is downloadable from <web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/EASTASIAPACIFICEXT/TIMORLESTEEXTN/0,,menuPK:294027~pagePK:141159~piPK:141110~theSitePK:294022,00.html>
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 new World Bank 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 (see laohamutuk.org/econ/OGE10/sub/09LHSubOJE10En.htm#domestic).
When the proposed Tax Reform law was being debated in March 2008, La'o Hamutuk's submission (laohamutuk.org/misc/AMPGovt/tax/LHTaxEn.pdf) doubted that the tax cuts would benefit local people, especially the majority who are less than affluent. Unfortunately, we turned out to be correct. For a collection of information and documents on that law, see laohamutuk.org/misc/AMPGovt/tax/TaxReform.htm .
-- Charlie Scheiner, La'o Hamutuk
Charles Scheiner La'o Hamutuk (The Timor-Leste Institute for Development Monitoring and Analysis) P.O. Box 340, Dili, Timor-Leste (East Timor) Telephone: +670-3325013 or +670-734-0965 mobile email: firstname.lastname@example.org website: http://www.laohamutuk.org skype: cscheiner