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Capital gains tax disappointing for business

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Key areas of the Tax Working Group Final Report were disappointing, says Canterbury Employers’ Chamber of Commerce Chief Executive Leeann Watson.

One of the most important and contentious elements of The Report, aimed at addressing the structure, fairness and balance of the New Zealand tax system, was around capital gains tax.

Ms Watson says the proposed capital gains rules should not be implemented because of the significant impact on small and medium-sized enterprises (SMEs).

“We support the Government’s review to ensure that our tax system is fit for purpose for a changing business environment. However, there is very real concern that taxing both shares and business assets under a comprehensive capital gains tax regime would create double taxation.

“This could disadvantage New Zealanders owning shares in New Zealand and create inconsistencies around overall taxation on investment.”

Ms Watson says a capital gains tax would be unlikely to achieve the desired outcome for business.

“There is concern around the effect for capital markets in a capital constrained economy with a long-term savings deficit. Adding further tax on the savings and investment of those New Zealanders in the middle-income bracket won’t drive the deepening and broadening of the capital base that we need for business investment, which is higher productivity and wages.

“While the impetus behind the changes are aspirational, there is little to indicate they would significantly reduce overinvestment in housing or increase ‘tax fairness’. In addition, there is concern that additional administration costs and investment distortions could outweigh any benefits and potentially discourage much-needed investment and innovation by locking businesses into current asset holdings.

“It is vitally important that we remain competitive as a country and are not continuing to add further compliance for business and in particular small business, who represent 97% of all businesses in our economy.”

Ms Watson says there needs to be a viable business case for any changes to the current tax system.

“There seems to be a real focus on ‘fairness’ in the system design, as opposed to revenue-building, so we need to be careful that any tax changes are for the right reasons and are backed by a clear, practical and sustainable business case. We currently have a fairly simple and efficient tax system that should be kept and better enforced, with changes to specific rules where needed.”

Despite concern around some of the proposed changes, Ms Watson says the level of consultation around the proposed changes is a positive sign.

“There has been considerable engagement on this issue, with submissions in the thousands from New Zealanders including iwi, businesses and unions.

“While these have highlighted the challenges and opportunities for the tax system, they also reinforce that tax is a big issue with significant reach into – and implications for – every part of our community.

“We will continue to advocate on behalf of our local business community on this issue and look forward to hearing the response from Government in April (2019).”

To explain what this Report and the proposed changes mean for local business, The Chamber will be hosting Expert Update: 2019 Tax Report on 28 March 2019, with Dr Deborah Russell – MP and tax expert, and Kirk Hope – Chief Executive of BusinessNZ and member of the Tax Working Group.

Source: Canterbury Employers Chamber of Commerce

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