ABC

Ramos Horta calls for Timor to be tax free

Updated 1 hour 49 minutes ago

East Timor's President has again declared his desire to see the fledgling nation become a tax-free state. But Jose Ramos Horta is now saying he would like to see it happen before the end of the year.

Presenter: Stephanie March

Speakers: Joao Gonsalves, East Timor's Minister for Economy and Development; Jose Teixeira, Fretilin opposition MP; Richard Krever, Director of Taxation Law and Policy Research Institute at Monash University.

MARCH: Move over Vanuatu and Macau, if East Timor's President has his way, the tiny south East Asian nation could become the worlds newest tax haven.

Jose Ramos Horta says he would like to see the country almost totally tax free by the end of the year, in a bid to attract more foreign investors.

But the Minister for Economy and Development, Joao Gonsalves, thinks otherwise.

GONSALVES: This is one of the options that Timor Leste can consider in the future but at this stage I dont think it is right time for us to adopt this sort of policy.

MARCH: Even the opposition agrees with the Minister.

Fretilin opposition MP Jose Teixeira

TEIXEIRA: I think that is, with all due respect to the President, a wild proposition.

MARCH: East Timor's parliament is currently debating a taxation review law that would see company revenue tax reduced from 30 to 10 percent, and customs and excise tax cut from 12 to 5 percent.

Along with improving infrastructure, Minister Gonsalves hopes these tax cuts that will be enough to encourage foreign investors into the country

GONSALVES: That may attract big investment into the country and one that I can mention to you is the tourism sector, you know it is probably our biggest potential even bigger than resources because it is one that will stay for ever and the resources, as you said, and very well, they will finish one day.

MARCH: He also hopes the legislation will reduce tax evasion.

GONSALVES: Companies you know, once you have an acceptable tax, ten percent instead of 30, I don't think they will like to run the risk of trying to avoid paying taxes. While this may happen now because of the the high tax and people certainly try to avoid declaring all their earnings and things like that.

MARCH: But taxation specialist Richard Krever from Monash University says the tax cuts are unlikely to have a great impact on East Timor's ability to attract investors.

KREVER: Tax rates do matter, but they don't matter very much compared to other things. That is, if you ask international investors what affects their investments they sort of run through 15 to 20 things, and about half way down at about 12 or 15 on a lot of the lists, is tax.

MARCH: If it's not tax cuts international investors are after, what do they want?

KREVER: The first thing they look for is labour costs for most manufacturing, for service industries its an educated workforce speaking the language that the investor works in, then they look for infrastructure.

MARCH: And according to Richard Krever when it comes to tourism, you've either got it, or you don't.

KREVER: Tourism is another one of these investments that tend to be location specific if you happen to have the Great Barrier Reef and Ayres Rock people will go there - we know with Ayres rock forget about taxes, its awfully expensive to get there, it's awfully far to get there and because it is isolated and expensive hotels are expensive and food is expensive, [but] people go there. People go there because it is a natural wonder.

MARCH: He says that tourism operators themselves are also unlikely to be enticed by tax breaks.

KREVER: Tourist operators - the people who run the hotels and the services there, taxes can affect their decision to invest or not to invest marginally. But only marginally because if people are going to come any ways, taxes can be passed on to the customers so that tends not to be a big factor.