While the government is looking favourably on calls in the McLeod tax review to lower business taxes to attract overseas investment, some software industry chiefs doubt the recommendations go far enough.
The independent tax review panel, headed by Auckland accountant Rob McLeod, recommends overseas company investors pay an 18% tax rate to make New Zealand “stand out more from the crowd” as an investment destination. The panel says direct foreign investment is essential to increase the size of the economy.
Finance Minister Michael Cullen says the government finds favour with the inward investment proposals and Treasury will look at them in greater detail.
McLeod produced two options for applying the 18% rate to non-resident companies. The first would not distinguish between investment and existing activities and is estimated to cost $460 million a year in lost revenue. The second option would limit the lower tax rate to non-residents’ investments and would cost $50 million.
Other proposals in the review include a maximum $1 million cap on personal income tax and reducing the top rate of tax from 39c to 33c.
San Francisco-based former New Zealander Jason Neal, who has mooted the creation of a technology park in Queenstown, says restricting the lower tax rate to overseas firms gives little incentive for Kiwi firms to remain here. It could also increase the perception of risk for foreign investors and this option might backfire, he says.
Neal favours lower business taxes for all, believing that would attract businesses and boost growth, thus generating more tax revenue for government, rather than reducing it.
As for his technology park scheme, a combination of global market uncertainty and his “diminishing confidence in the Labour government” have led him to “put everything on hold indefinitely”, though he says he will reassess things in several months.
One former IT industry chief presently consulting to a government agency says the Labour-Alliance government talks about aping Ireland’s success, so it should act like Ireland on tax matters. Eligible companies are subject to a tax rate of 10% until December 31, 2002, when a corporate tax rate of 12.5% will apply to all sectors.
A 39c top rate income tax here would offer little incentive against the 14% tax rate for contractors in the UK, the former IT chief says.