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Industrial Development Incentives Act

LAWS OF TONGA

[1988 Revised Edition]

CHAPTER 114

INDUSTRIAL DEVELOPMENT INCENTIVES ACT

Arrangement of Sections

Section
1 Short title.

PART I.- PRELIMINARY

2 Interpretation.
3 "Industrial enterprise" defined.

PART II. - DEVELOPMENT LICENCE

4 Approval of Industrial Enterprise and product of manufacture.
5 Development licence.
6 Transferring licence.

PART III. - DEVELOPMENT INCENTIVES

7 Tax holiday.
8 Exemption from payment of withholding tax.
9 Depreciation of assets.
10 Carry forward of losses.
11 Moratorium on payment of tax.
12 Exemption from Customs Duty.
13 Partial exemption from Port and Services Tax.
14 Exemption from export levy.
15 Repatriation of funds.
16 Protection for approved Industrial Enterprises.

PART IV. - MISCELLANEOUS

17 Powers of the Minister, the Commissioner and the Controller.
18 Saving.
19 Regulations.

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INDUSTRIAL DEVELOPMENT INCENTIVES ACT

Acts 5 of 1978, 11 of 1982, 3 of 1983, 46 of 1988

AN ACT TO ACTIVELY ENCOURAGE ENTREPRENEURSHIP FOR THE ESTABLISHMENT AND (GROWTH OF INDUSTRIES AND TOURISM IN THE KINGDOM THROUGH A SYSTEM OF GRANTING RELIEF FROM CERTAIN TAXES AND DUTIES AND TO PROVIDE FOR MATTERS INCIDENTAL THERETO OR CONNECTED THEREWITH

Commencement [29th February 1980]

1 Short title.

This Act may be cited as the Industrial Development Incentives Act.

PART I.- PRELIMINARY

2 Interpretation.

In this Act and any Regulations made hereunder unless the context otherwise requires:

"Approved Industrial Enterprise" means an enterprise belonging to any of the categories as defined in section 3 of this Act in respect of which a Development Licence has been issued by the Minister under section 5 of this Act;

"Approved Product" means a product of manufacture approved by the Minister;

"Assessable Income" means income as defined in the Income Tax Act (Cap. 68);

"Commissioner" means the Commissioner of Inland Revenue as defined in the Income Tax Act;

"Controller" means the Controller of Customs;

"Company" means any corporate body whether registered under the Companies Act (Cap. 27) or not and any partnership consisting of more than 7 persons;

"Customs Duty" means the tariff or import duty as set out in Schedule I to the Customs and Excise Act;

"Customs and Excise Act" means the Customs and Excise Act of the Kingdom (Cap. 67) as amended from time to time and the regulations framed thereunder;

"Depreciation" means deduction of an allowance for capital expenditure incurred in creating assets at such rates as prescribed under section 6(2)(a) of the Income Tax Act;

"Development Incentives" means relief from Income Tax, Customs Duty, Port and Service Tax, withholding tax and any other form of relief or assistance as expressly provided for under this Act with the prime objective of encouraging entrepreneurship and promoting industrial development;

"Development Licence" means a licence issued by the Minister under Section 5 of this Act;

"Export Levy" means any duty or tax payable by any person under any enactment for the time being in force relating to the levy of such duty or tax on exports of product(s);

"Foreign Exchange Control Act" means the Foreign Exchange Control Act (Cap. 103) as amended from time to time and any Regulations framed thereunder;

"Income Tax" means the income tax as defined, imposed and payable under the Income Tax Act (Cap. 68); (Substituted by Act 11 of 1982.)

"Income Tax Act" means the Income Tax Act of the Kingdom as amended from time to time and any regulations framed thereunder;

"Kingdom" means the Kingdom of Tonga;

"Minister" means the Minister of Labour, Commerce and Industries or such Minister whom Privy Council may appoint to be responsible for the time being for the performance of the duties under this Act;

"Non Resident" means a person who is not deemed to be resident in the Kingdom whether the term is applied to an individual or a company;

"Partnership" means an association of not more than 7 persons carrying on business as partners but does not include a company registered under the Companies Act (Cap. 27);

"Port and Services Tax Act" means the Port and Services Tax Act of Tonga (Cap. 71) as amended from time to time and any Regulations made under the Act;

"Port and Service Tax" means the tax leviable to be collected and paid on all goods imported into the Kingdom as specified in section 2(1) of the Port and Services Tax Act;

"Product of Manufacture" means any commodity prepared or created through some form of processing, manufacturing or assembly and is for sale;

"Sale" means the transfer of ownership of a product of manufacture for a consideration and shall include service charges, rental and tariff on prime facilities to the visitor industry;

"Tax Holiday" means an exemption from payment of income tax for any specified period;

"Tourist Act" means the Tourist Act (Cap. 117) as amended from time to time and any regulations framed thereunder;

"Withholding Tax" means the tax on withholding income referred to in section 70 of the Income Tax Act.

3 "Industrial enterprise" defined.

(1) In this Act, the term "Industrial Enterprise" means:

(a) any "company";

(b) statutory bodies established under any Act or Ordinance;

(c) co-operative societies registered under the Co-operative Societies Act (Cap. 118);

(d) private entrepreneurship be it a sole proprietorship concern or a partnership firm comprising of not more than 7 partners, Tongan or foreign;

(e) any other industry or enterprise deemed by His Majesty in Council to be an Industrial Enterprise; (Inserted by Act 3 of 1983.)

engaged in or desirous of engaging in any processing industry, manufacturing industry, assembly industry including packaging industry and/or providing approved prime facilities to the visitor industry if the product of manufacture or the prime facilities are intended for sale.

(2) Activities merely in the nature of drying or dehydration of any agricultural produce shall not normally be covered by the meaning of the term processing.

(3) "Prime Facilities" are those which are visitor producing in their own right as distinct from ancillary services which, essentially, provide the backup facilities to the tourist industry. Prime facilities would include:

(a) Accommodation such as hotels, motels, boarding houses, guest houses, apartments and caravans;

(b) Cruising Vessels: Vessels registered in Tonga and providing tourist standard accommodation and facilities used for the purpose of sightseeing and cruising between Tongan ports;

(c) Tourist Attractions: International standard sporting facilities such as golf, tennis, game-fishing etc. established to attract overseas tourists and major recreational and sightseeing facilities such as marine oceanariums, tropical gardens and parks and specially developed tourist sites incorporating aspects of Tongan culture and tradition.

(4) In the event of any doubt as to whether or not an enterprise is an "Industrial Enterprise" for the purpose of the grant of development incentives and other assistance, the decision of the Minister shall be final.

PART II. - DEVELOPMENT LICENCE

4 Approval of Industrial Enterprise and product of manufacture.

Any person desiring to establish an industrial enterprise with the express intent of processing, manufacturing or assembling a product or creating a prime facility to the visitor industry of the kind specified in Section 3 of this Act or an expansion of such an existing industrial enterprise shall first make an application to the Minister in such form and manner as may be prescribed by the Minister clearly specifying the product(s) of manufacture or prime facility to be created and the Minister, with due regard to the provisions of this Act, The Tourist Act and any other considerations which he may wish to take into account, may either approve the said industrial enterprise and the product(s) of manufacture and/or the prime facility or refuse the application and no appeal shall lie against the decision of the Minister.

5 Development licence.

(1) In the event of the Minister approving an application referred to in section 4, he shall either himself issue or authorise in writing any other person under his administrative direction to issue a Development Licence in favour of the industrial enterprise so approved by him, inter alia, specifying in the licence the approved product(s) of manufacture and/or the prime facility being created and the development incentives that would be available to the said enterprise in relation to the approved product of manufacture or the prime facility.

Development licence for enterprises existing prior to the commencement of this Act.

(2) The Minister may, on application, grant a Development Licence to any industrial enterprise established and in operation prior to the commencement of this Act if, on application by such enterprise and after taking into account all relevant factors, he is satisfied that it will be equitable and justified to grant the licence to the said enterprise in the manner specified in the preceding section. Such a licence shall not, however, entitle the enterprise to avail the incentives under this Act retroactively.

6 Transferring licence.

No licence issued under this Act shall be transferable and save with the prior written approval of the Minister a licence issued under this Act shall not exempt the holder from obtaining any other licence required in connection with his approved industrial enterprise under any other Act. (Amended by Act 11 of 1982.)

PART III. - DEVELOPMENT INCENTIVES

7 Tax holiday.

(1) Every approved industrial enterprise shall be entitled to exemption from payment of any income tax in respect of any assessable income earned by the said enterprise relating to the approved product or approved prime facility for a period of up to the first 5 consecutive years as determined by the Minister commencing from the date of commencement of production provided that in respect of a company the period of exemption or tax holiday may be extended up to 5 more consecutive years in exceptional circumstances by His Majesty in Council. (Amended by Act 11 of 1982.)

(2) In respect of expansion of an industrial enterprise, for making an approved product or creation of an approved prime facility, that amount of additional assessable income accruing directly as a result of such expansion shall be exempt from income tax for a period of up to 5 consecutive years as determined by the Minister from the date of commencement of expanded production. (Amended by Act 11 of 1982.)

(3) Every shareholder of a company approved as an "industrial enterprise" for the purpose of this Act shall be entitled to exemption from payment of any income tax on the income received by him or his nominee as dividend on his shareholding in the said enterprise relating to the tax holiday period specified in subsections (1) and (2); provided further that such dividend has been actually received by him not later than 2 years after the expiry of the said tax holiday period.

(4) The provisions of Part II, section 3 of the Income Tax Act, and the first schedule thereto shall remain inoperative for the duration of the tax holiday period specified in subsections (1), (2) and (3) of this section.

8 Exemption from payment of withholding tax.

(1) Any non-resident registered company or a non-resident shareholder of such company or a non-resident entrepreneur of an approved industrial enterprise shall be exempt from the payment of "withholding tax" on withholding income relating to the initial tax holiday; such exemption shall not however be available for any extended period of the tax holiday as may be approved by His Majesty in Council under section 7(1) of this Act. (Amended by Act 11 of 1982.)

(2) The provisions of sections 70(2)(a) and 74 of the Income Tax Act shall remain inoperative for the duration of the period specified in subsection (1).

9 Depreciation of assets.

(1) An approved industrial enterprise may provide for depreciation of its assets after the expiration of the period of tax holiday specified in section 7(1) and 7(2) of this Act on the original value of such assets provided further that the amount of depreciation is in accordance with such rates the Commissioner considers reasonable and any general instructions of His Majesty in Council as may be issued from time to time under Section 6(2)(a) of the Income Tax Act.

(2) In lieu of the 5 year tax holiday, an approved industrial enterprise of a capital intensive nature may opt for depreciating its assets fully on an accelerated basis at more than the normal rate prescribed under subsection (2)(a) of Section 6 of the Income Tax Act for depreciation of such assets within 5 years, such option once exercised being final. The option under this subsection, if exercised, shall be communicated in writing to the Minister and the Commissioner not later than 3 months from the date of issue of the Development Licence.

(3) The relief from payment of income tax on dividends received by a shareholder of a company as specified in Section 7(3) of this Act shall be available to the shareholder notwithstanding that the said company has opted for accelerated depreciation in lieu of the tax holiday provided for under subsection (2) of this section.

10 Carry forward of losses.

Notwithstanding the provisions of Section 6(1) of the Income Tax Act or any other provisions relative thereto, the net losses incurred by an approved industrial enterprise during any tax assessment year(s) may be carried forward and set off against future profits without any monetary limit provided further that such set off shall be against the profit accruing during the year(s) immediately following the year(s) in which such loss(es) has been incurred and accumulated.

11 Moratorium on payment of tax.

(1) The Commissioner, may, on application from an approved productive enterprise, postpone the collection of income tax payable after the tax holiday period by one or more years on a continuous basis, if, on considerations of national economy, the Commissioner feels that it is in the public interest to so postpone the collection of tax(es):

Provided that the Commissioner shall consult the Minister as to the economic state of the enterprise, its employment potential and its contributions to the national economy before making his decision and that no appeal shall lie against his decision.

(2) The powers of the Commissioner set forth in subsection (1) of this section are in amplification of the powers vested in him under section 41(5) of the Income Tax Act.

12 Exemption from Customs Duty.

Notwithstanding any provisions of the Customs and Excise Act, an approved industrial enterprise may procure or import "capital goods" free of customs duty for a period of up to 2 years from the date of issue of a development licence approving the said enterprise or expansion thereof if such goods are solely required for processing, manufacturing or assembling the approved product and/or for creating the approved prime facility: provided further, if the said goods are misused, sold or otherwise disposed of, full customs duty leviable thereon as at the time of their importation shall be recovered on such goods. (Amended by Acts 11 of 1982 and 46 of 1988.)

(2) The term "capital goods" means items such as building material, plant, equipment, machinery, components and spare parts thereof and automobiles such as tractors, forklifts, trucks and goods carrier vans, deluxe tour buses and tour boats but will exclude motor cars, minimokes and motor cycles. Duty free importation of any automobile shall have to be specifically applied for and approved by the Minister. (Amended by Act 11 of 1982.)

(3) In the event of any doubt at the time of actual importation of any item whether or not it is of the category of "capital goods", the decision of the Controller taken in consultation with the Minister shall be final.

Drawback of duty paid on semi and finished products and raw materials.

(4) Notwithstanding any provisions of the Customs and Excise Act, semi finished products and/or raw materials including packing materials imported by an approved industrial enterprise and used in the processing, manufacturing, assembling the approved product and packing thereof shall be exempt from payment of any customs duty leviable thereon if the final finished product(s) is or are re-exported. In regard to the said goods, the customs duty shall, however, be payable at the time of importation, such duty being refunded to the approved industrial enterprises at the time of re-exportation of the final finished product(s) on the basis of actual exports as evidenced by documentation to the satisfaction of the Controller: Provided that no customs duty shall be payable on semi finished products and/or raw materials including packaging materials imported by export oriented approved industrial enterprises as determined by the Minister if their final finished products are primarily for export. (Amended by Act 11 of 1982.)

(5) Exemption from Customs Duty on raw materials for trial runs on drawback basis.

(6) Notwithstanding any provision of the Customs and Excise Act, raw materials, including fuel imported by an approved industrial enterprise for use during trial runs, shall be exempt from payment of any customs duty leviable thereon provided the period of trial run (which shall in no case exceed 6 months) and the c.i.f, value of such raw materials, are specified in the Development Licence, a declaration is to be furnished by the said enterprise to the satisfaction of the Controller. (Amended by Act 11 of 1982.)

13 Partial exemption from Port and Services Tax.

(1) Notwithstanding the provisions of the Port and Services Tax Act, Port and Services Tax shall be levied and collected at a 50% concessional rate on all "capital goods" referred to in Section 12(1) of this Act.

(2) Port and Services Tax shall be leviable and collected on all other goods imported in accordance with the Port and Services Tax Act provided that the said tax shall be refunded to the approved enterprise if such goods qualify for refund of customs duty in the manner specified in section 12, subsections (4) and (5) of this Act: provided further that in respect of imports of semi finished products and/or raw materials on which customs duty is not payable under subsections (4) and (5) of section 12, port and services tax shall not be levied. (Amended by Act 11 of 1982.)

14 Exemption from export levy.

On application by an approved industrial enterprise exporting an approved product of manufacture and on the recommendation of the Minister, the Controller may exempt the said enterprise from payment of such levy fully or partially for any specified period.

15 Repatriation of funds.

Subject to the provisions of the Foreign Exchange Control Act or the Regulations framed thereunder and the Income Tax Act, a non-resident approved industrial enterprise or a non-resident shareholder of a company approved as an "Industrial Enterprise" shall be entitled to remit overseas funds in the nature of dividends, profits, gains, interest and capital provided further that:

(a) where the enterprise is financed by locally raised funds, profits etc. specified above accruing from such investments shall not be repatriated; where, however, the financing is partly through overseas funding and partly by locally raised funds, the amount repatriable shall be determined on a pro rata basis by the Minister of Finance or any other person authorised under the Foreign Exchange Control Regulations;

(b) in respect of capital gains, the amount repatriable shall be restricted to the amount transferred in through the banking system or other approved methods;

(c) expatriate employees shall be entitled to remit overseas their salaries and wages received in the Kingdom up to the amount on which Income Tax has been paid.

16 Protection for approved Industrial Enterprises.

(1) Notwithstanding the provisions of any other laws of the Kingdom, it shall be unlawful for any person, corporate or otherwise, to establish or expand, after the date of commencement of this Act, any manufacturing, processing or assembly operation and/or create prime facilities or expand thereof without the prior written consent of the Minister either under this Act or under the Tourist Act (Cap. 117), if the product of manufacture or prime facilities are intended for sale. Such a consent is necessary irrespective of whether or not the person intends to avail the development incentives under this Act.

(2) Any person contravening the provisions of subsection (1) of this section shall be liable on conviction to a fine not exceeding $1000.

(3) On application by any approved industrial enterprise and on the recommendation of the Minister, the Minister of Finance or any other person authorised under the Foreign Exchange Control Regulations may, if he considers it expedient, by an order published in the Gazette either wholly prohibit or quantitatively restrict the importation of any goods into the Kingdom for any period specified by him.

(4) Notwithstanding the provisions of the Customs and Excise Act, on application by an approved industrial enterprise and on the recommendations of the Minister, the Treasurer may, with the approval of Privy Council, either lower or raise the rate of Customs Duty on any goods of all or any origin and description imported into the Kingdom for such period(s) specified by him.

PART IV. - MISCELLANEOUS

17 Powers of the Minister, the Commissioner and the Controller.

(1) It shall be lawful for the Minister, the Commissioner, the Controller or any other person authorised by any of them:

(a) to enter the premises of an industrial enterprise, approved or otherwise, with the express intent of inspecting the processing, manufacturing, assembly operations or operation of the prime facilities or any processed, manufactured, assembled or imported goods;

(b) to himself collect, scrutinise, take or require the production of any document, material as sample or any information orally or in writing if in the opinion of the Minister, the Commissioner or the Controller it is expedient to do so for the purposes of this Act.

(2) No person shall:

(a) obstruct the Minister, the Commissioner, the Controller or the authorised person in the exercise of their powers and duties under subsection (1) of this section;

(b) wilfully fail to give information or to produce any documents or samples required of him;

(c) knowingly give false information relating to any matter relating to this Act.

(3) Any person who contravenes the provisions of this Section or any order issued thereunder shall be liable upon conviction to a fine not exceeding $500 or to a term of imprisonment not exceeding 6 months or both.

18 Saving.

The Minister, the Commissioner or the Controller under this Act shall have the power to revoke, cancel or modify such licence or order issued under this Act and no cause of action whatsoever shall lie against such revocation or modification provided that before any revocation or modification order is made, the Minister, the Commissioner or the Controller shall give an opportunity to the Industrial Enterprise or any other person as necessary as to why the proposed revocation or modification should not be made. No appeal shall lie against such revocation or modification order.

19 Regulations.

(1) The Minister may with the consent of His Majesty in Council from time to time make such Regulations as are in his opinion necessary or expedient for giving effect to the provisions of this Act and the due administration thereof.

(2) All such Regulations shall be duly published in the Gazette.

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