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Tax changes to raise more revenue than expected: KPMG

Changes to how the government taxes offshore investments are likely to gain more revenue than earlier thought, says KPMG.

Thursday, May 4th 2006, 7:09AM

by Rob Hosking

One aspect of the proposed changes is offshore investments will be taxed on a comparative value basis – that is, the value at the start of the year is compared with the value at the end of the year and the change in value taxed.

The original IRD proposal was that the change in value be the entire change: the latest proposal is for an 85% change.

The Investment Savings and Insurance Association has suggested something closer to 50% would be fairer.

KPMG’s tax practitioners say that 85% seems to be based on an analysis of payouts by Australian companies of their annual profit.

In effect, that “taxes on both a dividend yield and a taxable income proxy, so that it potentially double-taxes income,” the company says.

The 85% CV is a capital gains tax on top of the income tax payable on any dividends.

“So that’s probably too high,” says KPMG tax partner John Cantin.

It is likely a number of submissions on that aspect will be made as it goes through the Parliamentary process, he says.

“It is probably though going to come down to how much money the government needs. You’d like to think it would be decided on the basis of the stronger argument.”

KPMG has also calculated the estimates of how much revenue the government will reap are probably too low.

These are based on 2004 figures and suggest there is a fiscal trade-off – the amount raised from lowering the tax take from New Zealand and Australian investments for funds is matched by the revenue raised by extended the capital gains tax to grey list countries for direct investors.

“Markets and exchange rates have moved significantly since then, and it is likely the revenue raised form direct investors will be greater than the estimate.”

Revenue Minister Peter Dunne’s office was approached for a response to KPMG’s comments but did not respond in time.

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

« KPMG warns of Westpoint type collapse in NZSovereign takes regulation bull by the horns »

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