Market eagerly anticipates Tax Working Group review

by Ksenia Stepanova21 Feb 2019

The Tax Working Group’s review is set to be released today and is expected to offer a number of recommendations, particularly around capital gains tax (CGT) and company tax.

In the Tax Working Group’s interim report, released last September, it stated that the tax system’s “inconsistent treatment of capital income” was likely an influencing factor in New Zealand’s housing affordability, and while the tax system is not responsible for the shortfall in housing supply, it does influence housing demand.  It also stated that the current tax system offers “few incentives” for retirement saving, with KiwiSaver benefits primarily being targeted towards lower income earners.

The group will also be “examining the merits of extending the taxation of capital income.” When it comes to company tax, Chairman Sir Michael Cullen said at the time that a company tax rate reduction would not be recommended.

Social Credit Party leader and finance spokesperson Chris Leitch has expressed disappointment that the review will likely not touch on goods and services tax (GST), which he says puts a significant compliance burden on small-to-medium businesses across New Zealand. He says GST should be replaced with a financial transaction tax at under 1%, which would “haul into the net” major overseas online businesses such as Google and Facebook, and make up for the shortfall that would occur as a result of a GST scrap.

“The GST is a major problem for both businesses and their customers,” Leitch told NZ Adviser. “There are significant compliance costs for businesses in filing GST returns and conducting audits, and it adds to the accounting complexity at the end of the financial year.”

“It’s also a significant disincentive for consumers in New Zealand to deal with local businesses, despite what the government has done to try to impose GST on suppliers overseas,” he explained.

“There’s no reason why they couldn’t scrap GST altogether, and they could replace that lost income by introducing a transaction tax at a quarter of a cent per $100. This would be effective as a transaction tax would catch all the speculative activity in the economy –which is massive – that doesn’t attract GST. It would radically improve the situation for small-to-medium businesses.”

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