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Tonga - business -- Review
The business of Tonga is still in developement - there are not yet that many big companies drawing attention. Real estate companies have just started to spring up in Tonga; as such, they were basically unheard of less than a decade ago. These have provided a way of making income for many Tongans as nearly every male Tongan has plots of land that he has never seen and the leasing of this valuable and attractive land allows the Tongan to live in a comfort not experienced before. There are also many Tongans who work as commission agents and earn a living by finding available land parcels and bringing them to local ex-pats or computer savvy Tongans to list on-line. Some of these so-called real estate companies have done more harm than good and one would be wise to be careful when dealing with them. However for the most part acquiring real estate in Tonga is a simple, straightforward and problem-free process.
Tonga - business -- Employment
Economic Freedoms
| Type |
Description |
| Labor Freedom |
Tonga's flexible labor regulations facilitate employment and productivity growth. The non-salary cost of employing a worker is low, and dismissing a redundant employee is not costly. However, the formal labor market is not fully developed. |
| Trade Freedom |
Tonga's weighted average tariff rate was 17 percent in 2006. Tonga has made progress in liberalizing its trade regime, but import restrictions, import taxes, import certification requirements, and inadequate infrastructure add to the cost of trade. Ten points were deducted from Tonga's trade freedom score to account for non-tariff barriers. |
| Investment Freedom |
Foreign investors are restricted by law from doing business in certain sectors and must be approved by the government. The government allows full ownership by a foreign investor in cases where manufacturing activities are using imported raw materials for export or the investments are too large for local investors; however, the government encourages joint ventures. Bureaucracy is generally transparent and efficient. To conserve foreign exchange, the National Reserve Bank of Tonga exercises some control of foreign receipts and payments. The repatriation of funds, including dividends, profits, capital gains, interest on capital and loan repayment, and salaries, faces some restrictions. Land may be leased but not owned. |
Tonga - business -- Companies
Economic characteristics
| Type |
Description |
| Fiscal system |
A comprehensive tax reform package implemented in late 2007 resulted in consolidation of the corporate tax and simplification of the overall system. The top income tax rate was raised to 20 percent, and the top corporate tax rate is 25 percent. Other taxes include a value-added tax (VAT) and a vehicle tax. In the most recent year, overall tax revenue as a percentage of GDP was 27.0 percent. |
| Business climate |
The overall freedom to start, operate, and close a business is respected under Tonga's regulatory environment. Starting a business takes an average of 25 days, compared to the world average of 38 days. Obtaining a business license requires less than the world average of 18 procedures. Closing a business is time-consuming and costly. |
| Inflation |
Inflation is relatively high, averaging 6.5 percent between 2005 and 2007. The government influences prices of petroleum products and other commodities through regulations. The ruling family and other Tongan nobles control other key prices through their ownership of most enterprises and utilities. Fifteen points were deducted from Tonga's monetary freedom score to adjust for measures that distort domestic prices. |
| Government Size |
Total government expenditures, including consumption and transfer payments, are high. In the most recent year, government spending equaled 37.4 percent of GDP. |
| Finance |
Tonga's small financial sector remains underdeveloped and dominated by banking. There are three commercial banks operating in the country, and financing is generally available to domestic as well as foreign investors without restrictions. However, the relatively high costs of credit and limited access to financing impede more dynamic entrepreneurial activity. A considerable portion of the island's population is outside of the formal banking sector. The National Reserve Bank of Tonga oversees banking, and the government-owned Tonga Development Bank finances many development projects. Capital markets are undeveloped. |
| Property Rights |
Tonga has a fairly efficient legal system based on British common law. The judiciary is independent and conducts generally fair public trials, although all judges are appointed by the monarch. Property rights are uncertain. The constitution mandates that an 8.25-acre plot of communally owned land be given to each male at age 16, but there is not enough land available to fulfill that mandate for the rapidly growing population, and this is a source of dissension. Tonga has legislation protecting intellectual property rights, but enforcement of IPR laws is weak. Counterfeit and pirated products are widely available on the local market. |
| Corruption |
Corruption is perceived as rampant. Tonga ranks 175th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. Although the law provides criminal penalties for official corruption, government officials sometimes engage in corrupt practices with impunity. In a high-profile case in 2006, the Speaker of the Tongan Parliament was convicted and fined for bribery. Another minister has been accused of misappropriating public funds. Government preferences appear to benefit businesses associated with members of the royal family. |
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