New Foreign Exchange Control Act 2018 effective on July 2018
Radio & TV Tonga, Nuku’alofa, 07/09/2018
The National Reserve Bank of Tonga continues with its operation to ensure Tonga’s macroeconomic stability, the country’s level of foreign exchange reserves must be sufficient at all times to pay for the overseas payment obligations such as payment of imports, loan repayments and other foreign obligations.
The Reserve Bank has been tasked by law to regulate the movements of foreign exchange in order to support and maintain the Kingdom’s foreign reserves. The Reserve Bank has implemented the requirements of the Foreign Exchange Control Act and Regulations through issuing of Exchange Control Guidelines that outlines the documentary requirements for each type of overseas payment. This is currently implemented by the banks and the foreign exchange dealers.
The challenges that Reserve Bank has been facing under the old legislation, are that especially when the level of foreign reserves is very low and unable to meet Tonga’s overseas payment obligations, there was no requirement in place to ensure the repatriation of the proceeds of export of say fish and squash as well as income from whale watching that are being paid overseas.
There was no level playing field in both complying with the exchange control requirements, and on enforcing these requirements on both banks and foreign exchange dealers because there was a weak enforcement power.There was no legal provision to also impose limit on foreign exchange dealers’ exchange rate spreads. The Reserve Bank therefore consolidated the existing Act and Regulations and introduced new provisions to address the above challenges.
This new law enhances the ability of the country to ensure the foreign exchange that is due to Tonga and its residents are realized and repatriated back to Tonga to facilitate macroeconomic stability and sustainable economic development. The Reserve Bank is hereby notifying the public that the Foreign Exchange Control Act 2018 was gazetted and became effective on July 10th 2018.
The Foreign Exchange Control Act 2018 repeals the Foreign Exchange Control Act 1963 and the (Amendment) Act 2000, and all Regulations made under the repealed Act. Some of the suggestions from the consultations were taken on board in this Act. Major sections of the Foreign Exchange Control Act 2018 stated the expansion from the previous Foreign Exchange Control Act 1963 and Foreign Exchange Regulations 1965 and amendments in 2000, to also include receipts from outside Tonga, to be conducted in accordance with the requirements of the new Act. These were requirements in the previous Foreign Exchange Control Act 1963 and Foreign Exchange Control Regulation 1965. These transactions are still allowed but in accordance with the provisions of the Act.
All exports of goods and services from Tonga are required to be declared to the Reserve Bank and other relevant authorities supported by relevant documentation to quantify the value of such goods and services that are being exported.
The Reserve Bank now has the power to impose requirements to repatriate back any gold or foreign exchange that is due or has accrued to any person resident in Tonga within a period and in such a manner as may be specified. The Reserve Bank may prescribe limits as exemptions to the requirements in Sections 5 and 8 such as the limit on how much foreign exchange or gold to be held by a resident, or a limit on a resident’s foreign currency account.
Only persons authorized by the Reserve Bank can deal in foreign exchange, foreign securities and gold. Authorized persons that the Reserve Bank has licensed under the previous Foreign Exchange Control Act and Regulations include the Banks and Foreign exchange dealers. The Reserve Bank now has the power to issue directives and impose penalties on authorized persons for non-compliance with the provisions of the Act.
The remaining sections of the Act relates to Licensing requirements for Foreign Exchange Dealers, Contravention and Penalties, Enforcement and Miscellaneous provisions.
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