Cutting the company tax rate isn’t a “silver bullet” that would stoke foreign investment in New Zealand, according to the Inland Revenue Department.
Commissioner Bob Russell told Parliament’s Finance and Expenditure Select Committee lowering the corporate tax rate is just one in a series of factors that will encourage international entities to park their funds in New Zealand. The nation’s distance from other markets means it doesn’t have to compete on tax in the same way countries of a similar size might have to.
“New Zealand is a small country quite remote from lots of places,” Russell said. “In a sense it’s not as important for us to be competing in lowering our rates progressively as it might be if you were a small European country with lots of other alternatives to service a market.”
The National Party-led administration cut the company tax rate to 28 percent in the 2010 Budget, something the tax department lobbied against, saying the misalignment with personal tax rates created a bias towards company structures and reintroduced “incoherence into the taxation of savings vehicles.” The Treasury was in favour of the rate cut, saying it would bolster corporate investment, including from offshore.
Struan Little, IRD’s deputy commissioner policy advice division, told the committee tax rates can affect the movement of capital across boundaries, but it “is not a silver bullet” and “a lot of other factors influence investment.”
Russell said because New Zealand’s a smaller country, larger companies tend to invest to target the local market, and isn’t necessarily linked to lower taxes.
In its briefing to the incoming minister, the IRD reported the government’s tax take as a ratio of gross domestic product fell 4 percentage points since 2007. Little told the select committee about 2.5 percentage points of that was due to government policy, with the remainder stemming from the country’s recession.
Last month, government financial statements showed its personal tax take continued to fall short of Treasury forecasts in the five months ended Nov. 30, though corporate tax revenue was ahead of expectations.
Russell told the committee the 17 percent increase in overdue Pay As You Earn tax was the department’s biggest debt collection concern, and is a priority for it to recover.
The rise in outstanding PAYE was a result from the recession as ailing businesses fail over the subsequent years, he said.
Russell said the department was working towards a leaner, more efficient model, with further cuts to its headcount likely, having already reduced staff numbers by 2,800 since 2008.
“We still have a very active change agenda underway, and that puts pressure on the organisation,” he said.
4 Comments
5000 hectares of top producing dairy land for sale! Enoughs enough. What advantage to you and I to open up land prices to international demand thereby reducing local producers return on equity? Foreign investment is needed but cant this be guided into productivity increasing assets? Put company tax rates back to 33%+ to at least keep more of the profits in the country.
Bill English has rightly said on record that lower corporate tax rates will promote economic activity and prosperity.
IRD from W33 through to Penny & Hooper enforce the policy that small to medium sized companies retaining income and not having that inome taxed at the highest personal rates of the shareholder employees is tax avoidance. IRD have said they will only apply Penny and Hooper to service companies: bullshit. Why? They believe, and the judiciary backs them, that the individual must be sacrificed on the violent altar of the ignoble welfare state. They will continue to wage their war on freedom, privacy and prosperity, and Bill English and Peter Dunne will give them all the Stasi powers to do so.
Treasury believes that lower corporate tax rates will promote economic activity and presperity.
IRD from W33 through to Penny & Hooper enforce the policy that small to medium sized companies retaining income and not having that inome taxed at the highest personal rates of the shareholder employees is tax avoidance. IRD have said they will only apply Penny and Hooper to service companies: bullshit. Why? They believe, and the judiciary backs them, that the individual must be sacrificed on the violent altar of the ignoble welfare state. They will continue to wage their war on freedom, privacy and prosperity, and Bill English and Peter Dunne will give them all the Stasi powers to do so.
Do you see the problem?
The New Zealand tax system: a pile of steaming, thieving, two-faced shite.
Well you would expect good advice on business matters from the IRD wouldn't you? Oh, hang about a minute, No you would not, now would you?
Seems to me there is an incentive for companies with offices in Aus and NZ to move some jobs our way if our company tax rate is lower. We have to pinch the jobs from Aus, not send our guys there. Seems pretty simple to me, but there you are.
Well this is a brilliant business idea. Investments would be that great if the custom will just give them a low cost of tax. Anyone who owes back taxes can know just how annoying it is to owe the IRS that much cash. Not only does the government want the cash you did not pay by forgetting to file taxes for a couple of years; it also wants to charge you fees on all that money. That can be a huge bill to pay. A cash advance can help you pay it right now and get the IRS off your back. Learn more at: Payday Loans.
We welcome your comments below. If you are not already registered, please register to comment.
Remember we welcome robust, respectful and insightful debate. We don't welcome abusive or defamatory comments and will de-register those repeatedly making such comments. Our current comment policy is here.