Government Reviews Draft VAT Law as Part of Tax Reform
Members of the Government participated on September 23rd, 2026, in a seminar at the Kay Rala Xanana Gusmão Auditorium of the Ministry of Finance in Dili, dedicated to presenting and discussing the legislative initiative to establish Value Added Tax (VAT), organised by the Ministry of Finance through the Tax Authority.
The seminar aimed to present the key elements of the draft law, including its structure and the mechanisms envisaged for implementing VAT, and to gather comments and contributions from members of the Government as part of the process of preparing the legislative proposal.
The initiative forms part of the tax reform agenda of the 9th Constitutional Government, which provides for strengthening domestic revenue mobilisation, broadening the tax base, and gradually reducing dependence on revenues from the Petroleum Fund.
The Programme of the 9th Constitutional Government sets the objective of increasing domestic revenues and, among the measures to achieve this target, identifies revising the Tax Law, introducing VAT, and strengthening the capacities of the Tax Authority and the Customs Authority.
VAT preparation is also linked to Timor-Leste’s regional economic integration process. With the implementation of the ASEAN Trade in Goods Agreement (ATIGA), duties on imports from ASEAN Member States will be progressively reduced or eliminated in accordance with the applicable transition period. In this context, VAT is one of the measures envisaged to strengthen and diversify domestic revenue sources.
The draft VAT Law is at an advanced stage of preparation by the Tax Authority, with technical assistance from Rita de la Feria, a specialist in Tax Law and Professor of Tax Law at the University of Leeds. She previously advised the Government of Timor-Leste on the preparation of an initial version of the draft law in 2015 and 2016 and is currently in Timor-Leste to support its revision.
During the seminar, Government members were presented with the reform framework, the characteristics of VAT, and the main mechanisms envisaged in the draft law. VAT is an indirect tax applied at different stages of the supply chain for goods and services. It allows economic operators, subject to the provisions of the law, to deduct the tax paid on their purchases from the tax charged on their sales.
The 2026 budget documentation provides for the introduction of VAT in 2027 and estimates that the measure could increase domestic revenues. Fiscal policy options for the future VAT system remain under discussion as part of the preparation of the relevant legislative framework.
The seminar with Government members is part of a series of consultations and technical sessions held during the VAT Law adviser’s visit to Timor-Leste. The programme includes meetings with the Tax Authority, the Customs Authority, the National Parliament, and private-sector representatives.
The contributions gathered during these sessions will be considered when revising the draft VAT Law, before the process of preparing the proposal for consideration by the Council of Ministers and its subsequent submission to the National Parliament is completed.
