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New tax proposals cause problems

The government's U-turn on tax proposals, announced Friday, create big problems for the Finance and expenditure select committee and also organisations which have already made submissions.

Tuesday, September 19th 2006, 6:25AM

by Rob Hosking

Finance and Expenditure select committee chairman Shane Jones, says some submitters who have already made their views known may have to be asked back.

The government’s abrupt change of tack on Friday came after three weeks’ of select committee hearings, without a single submission in support of the current changes.

PricewaterhouseCoopers chairman John Shewan had submitted that the government look at a form of the risk free rate of return (RFRM) method first mooted by the 2001 Tax Review. The new proposal, dubbed the “fair dividend rate method” is similar to RFRM.

“The select committee had indicated we were interested in this approach and what the ministers’ announcement means is the government is not averse to the select committee moving in this direction,” Jones told Good Returns.

The committee will meet next week, and take advice from the Clerk of the House on the best approach from here, Jones says.

Most of the larger funds management firms have made submissions on provisions, as have the main sector groups. However, what they were submitting on is now being stripped out of the bill and replaced with the new proposals.

“There might need to be a more limited type of contact between people who have already made a submission and the committee,” Jones says.

That however is not automatic. A number of submitters were asked what they thought of the Shewan proposal and some actually suggested something similar themselves, Jones says.

“We need to go back and have a close look at what they said and how they regard this option.” The issue has thrown up a number of thorny constitutional and procedural issues. Firstly, the generic tax reform process, developed over the past 20 years, has been effectively short-circuited by what is a radical re-write of a bill in the select committee stages, and a number of lawyers and accountants are not happy with the current process.

There is also the issue that, technically, the select committee came close to rejecting a tax bill – one which contains not only the investment tax changes but also sets the tax rates for the coming year.

Technically rejection of a tax bill is a rejection of a government, and could trigger an election.

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

« Wealth tax now on the agendaSovereign takes regulation bull by the horns »

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