by Rob Hosking
Taxing all offshore investments using CV – a form of capital gains tax – was put up as an option nearly two years ago, as an alternative to the risk free rate of return (RFRM) method.
At the time RFRM appeared more likely: now the government is going down the CV route. CV taxes the change in the value of an investment over the course of a year.
However the original option suggested setting the level at 70% of the change. The latest discussion document though says the level should be set at 100%.
“There is no magic number that provides the right percentage [and] any percentage used would be inherently arbitrary,” officials argue. The ISI says in that case 100% is no less arbitrary than any other number, and that 100% is too high.
“I think the Minister of Finance will be prepared to show a bit of flexibility in that regard,” says ISI chief executive Vance Arkinstall.
The overall policy aim is to reduce distortions in how investments are taxed, he says, and setting CV at 100% would run counter to that, as it would put too harsh a tax regime on offshore investments.
That could cause over-stimulation of the local sharemarket “or even worse from an economic point of view, the property market.”
More: Proposed tax changes will make people poorer in retirement
Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.
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