Tax Working Group Interim Report fails to live up to hype

Report kicks capital gains tax into the long grass for now, but recommends company tax rate stays at 28 percent

Wellington, 20 September 2018 – Despite the hype leading up to the release of the Tax Working Group’s (TWG) Interim Report today, in reality the report offers few concrete recommendations for change and little new to our tax system at this time.

Deloitte Partner Patrick McCalman says this is unsurprising given the interim nature of the report, and the fact that this is the third such working group since the turn of the Century, all on similar themes and each building on the previous one.

“There are no particularly earth shattering or new revelations in today’s report with many of the TWG’s comments either addressing matters that are more remedial in nature or for the more difficult ones, kicked back into the long grass” says Mr McCalman.

“However, the report is useful in raising a number of issues which, if the TWG is to be judged as ‘successful’, will need to be concluded in the final report next year.”

The most highly anticipated aspect of the Interim Report is in relation to the taxation of capital. The report doesn’t give a view either way at this stage, but instead provides comprehensive coverage of the issues which need to be considered if New Zealand moves to have more comprehensive taxation of capital income.

Mr McCalman says the report is clear that there is more work to be done before a conclusion can be reached on this topic.

“But, given the level of detail provided in support of this conclusion, it’s inevitable that introducing this type of tax would result in significant added complexity to the system,” he says.

“This raises an obvious question as to whether there is an adequate trade-off from expected revenue collected versus compliance costs added, and whether more targeted rules specific to identified ‘problem’ areas like property would be a more effective solution. Put another way, under what settings is the juice worth the squeeze.”

A key question for business will be what is in the final report next year, including to offset any potential additional taxes or additional compliance costs that may fall out of the recommendations. In this respect, there has already emerged one clear recommendation: that the company tax rate should not fall from the current 28 percent rate.

“Given the global trend of falling corporate tax rates, if this is the direction of travel to be chosen, it is important that other initiatives are explored to ensure that New Zealand remains an attractive place to do business,” says Mr McCalman.

The TWG has very much kept its powder dry which enables the Government to do the same.

ENDS

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