Friday, January 9, 2009

New Zealand Tax Factoids

Thanks to Chris Heaslip at the New Zealand Tax Blog for the heads up about two NZ Herald articles that offer a few things that I did not know about New Zealand taxation. The first is an editorial by some-time contributor Peter Whitmore arguing for the implementation of a capital gains tax. That's right, apparently New Zealand is without capital gains tax -- how nice for Kiwi investors. My first thought -- and as Mr. Whitmore points out -- is that this is foregoing a great deal of progressiveness in the tax system as one might imagine that the wealthy are likely to realize a greater proportion of capital gains than those in lower income brackets. This is possibly compounded by the presence of a goods and services tax (GST -- akin to the EU VAT) which I would suspect is regressive in nature. This doesn't jibe with my understanding that New Zealand is supposed to have a fairly progressive tax system. Maybe I dreamt that...

The second article describes how New Zealand businesses are advocating for a number of tax changes to better deal with the current recession, one of which is reduce the provisional tax that companies pay before computing actual tax owed. "Companies currently pay provisional tax on their last year's profit - plus an assumed 5 per cent annual increase - which Shaw says should be scrapped or replaced, with an assumption of a 10 per cent decrease." I find the existing 5% increase rule interesting as it seems quite arbitrary and likely to be far off for many companies in most years. I suppose it is possible that 5% is pretty close to the average annual growth, but if I were one of the many business owners for whom this is not realistic I think I would advocate for another way of calculating provisional tax. Although maybe some other such method does exist and there is a choice involved -- after all I am guessing that this quick article does not contain all of the relevant information.

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