NZ Inland Revenue Says Tax Survey 'Inaccurate'

by Mary Swire, Tax-News.com, Hong Kong

11 March 2002

The New Zealand Inland Revenue Department has dismissed the findings of a KPMG international tax survey conducted last month, which found that the country now has one of the highest corporate tax rates in the world.

The tax department, in a note to Finance Minister Michael Cullen, argued that 'headline' tax rates do not provide an accurate representation of the overall effective tax burden faced by corporate taxpayers.

'While it is likely that many countries with a lower headline company tax rate will have lower effective tax rates on income distributed to shareholders, this is not necessarily the case,' the Revenue Department said, adding that: 'A more relevent comparison would be to compare effective tax rates across countries'.

In its report, KPMG observed that New Zealand's corporate tax rate is above the OECD average, and called for the Finance Minister to cut corporate tax to 28% in order to help the country remain internationally competitive.

However, the tax department echoed the concerns expressed by the McLeod review last year, that any cut in corporate income taxes could lead to a greater number of taxpayers participating in tax avoidance schemes. In the letter released last week, the Inland Revenue supported the recommendation made by the Review, which suggested aligning corporate tax rates with the top rate of personal income tax, which currently stands at 39%.

'Reducing further the company tax rate without reducing the top marginal personal rate would increase the incentive for more individuals to undertake tax planning activity and could reduce the equity in the tax system,' it argued.

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