Putting a price on tax changes

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Setting the proposed comparative value method of taxing offshore investments at 70% rather than 100% would cost the government nearly a billion dollars a year, officials say.

Thursday, July 21st 2005, 4:15PM

by Rob Hosking

The government’s recent discussion document puts forward CV as the best way of taxing offshore investments. A form of capital gains tax, it already applies to some offshore funds and it was put forward in an options paper towards the end of 2003 as an alternative to the then front runner, the risk free rate of return method (RFRM).

At that stage the rate was suggested at 70% of the change in capital gain.

However the latest discussions document recommends firmly that the change be set at 100%.

Treasury tax adviser Brock Jera says the 70% was put up at that time because it roughly matched the revenue from RFRM. That is, RFRM would have cost the government money.

It also would have slightly reduced the effect to taxpayers of volatile shifts in share value.

“It would cost somewhere between $800-900 million a year,” he told Good Returns.

“The big problem is about investments moving through to places like the Cook Islands. The only way to deal with that would be to have some sort of black list to replace the grey list, and that would only complicate things again.”

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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