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Unhappiness at tax change decision

There is disappointment and chagrin at the decision of a Parliamentary select committee not to recommend a lower rate for the planned investment tax changes.

Wednesday, December 6th 2006, 6:53AM

by Rob Hosking

Despite virtually every submission on the last round of tax changes suggesting a flat rate of 3% for direct and indirect investments, the Finance and Expenditure select committee has recommended no change.

The rate will remain at 5% of the value of the investment for managed funds, and capped at the same level for direct investors.

The Investment Savings and Insurance Association says the changes, although an improvement on the current situation, are “disappointing".

“There was a huge weight of submissions arguing that the distance between managed funds and individual investors should be removed or at least reduced,” says chief executive Vance Arkinstall.

And PriceWaterhouseCoopers says the rate is “too harsh”.

“We sensed a palpable and very strong consensus forming during the Select Committee hearings around a simple, flat rate of tax at around 3% - not the so-called Fair Dividend Rate of 5% which the Select Committee has recommended in this report,” says financial services partner Paul Mersi.

“Experts who made submissions were unanimous that 5% was well above the actual dividend yield on international shares.”

Mersi predicts “grumpy” taxpayers who will feel the tax is unfair, and that this will lead to “less than full compliance” – putting more onus on the Inland Revenue for enforcement action.

“It seems such a shame that the acceptability of this change could have been materially improved simply by pitching the rate a little lower and with relatively little cost to the Government. I think that in time this will be regretted as a missed opportunity.”

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

« Tax changes force fund closureSovereign takes regulation bull by the horns »

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