Tax Effort and Tax Potential in Timor-Leste

<p>This report analyzes tax policy reforms needed in Timor-Leste to boost domestic revenue mobilization and help drive more inclusive and sustainable economic growth.</p><p><br></p><p>Timor-Leste one of Southeast Asia's poorest countries relies heavily on petroleum income to finance its large public expenditure envelope. As a result the country remains vulnerable to revenue fluctuations which in turn contribute to macroeconomic volatility. This report concludes that a more diversified approach to domestic resource mobilization will reduce such volatility and provide more stability in government finances. To achieve this it proposes a modern value-added tax is introduced alongside other tax administration reforms and that these need to be complemented by more efficient public expenditure. </p>