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Industry concerned about tax changes

There is growing disquiet that changes to the tax rules for international investments will be shoved through Parliament with minimal further discussion.

Wednesday, October 25th 2006, 5:23AM

by Rob Hosking

The Finance and Expenditure select committee has a month from today to report back to Parliament with its recommendations for change.

The government has effectively ripped the centre out of the bill as originally introduced to the House and re-written it, making earlier submissions virtually meaningless.

Committee chairman Shane Jones has indicated some groups will be asked to reappear before the committee. Those likely to appear include two experts whose work led to the tax changes – former BT Investments chief executive Craig Stobo and Business Roundtable chairman Rob McLeod.

Two other submitters likely to appear are the Institute of Chartered Accountants and the Law Society.

It is not yet clear if any financial sector groups will be asked to reappear.

“We haven’t heard anything,” Investment Savings and Insurance Association chief executive Vance Arkinstall says.

He is concerned about the lack of detail on the proposed changes: "Apart from the two ministers’ comments, which were very short of detail, we don’t have a clear picture of what this regime will start to look like."

"That’s pretty worrying. This is the biggest change in the taxation of investment for 15 years."

Arkinstall says the new proposals, for a fair dividend rate (FDR), seem to bring back many of the distortions the original tax reform was supposed to get rid of.

"One of the concerns we have is that the government has lost sight of the original intent of the bill, which was to align tax rates between direct and indirect investors, and around removing distortions which had been there for many years.

"FDR, as proposed by ministers, re-establishes some of those distortions. As an industry, we would could live with FDR, but we need some indication that it won’t result in further imbalances," he says.

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

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