Slashing company tax rates to 15% for foreign-owned firms is highlighted as an option in the government-sponsored McLeod Tax review.
In a bid to attract overseas investors and investment, particularly in IT, it also suggested a maximum annual tax bill for individuals of $1 million.
The moves have been welcomed by ITANZ chief executive Jim O’Neill, saying it will help tilt the level playing field in New Zealand’s favour in attracting direct foreign investment, now estimated at $63.8 billion.
Would-be investor Jason Neal, who plans a Queenstown technology park, also called the review proposals “a step in the right direction”.
The review, led by Arthur Andersen partner Robert McLeod, notes globalisation is making it harder for firms to tax income and profits. Companies and high-earning individuals have "plenty of other options. They will bring funds here only if their return after New Zealand tax at least equals their return elsewhere,” says the executive summary.
However, for Kiwi firms, the review recommends keeping company tax at 33%, with graduated rates depending on the level of ownership.
The review estimates slashing company tax for overseas-owned firms would cost $855 million, but Neal says the move would pay for itself by attracting businesses from overseas, as happened in Ireland and elsewhere.
The former Queenstowner, now based in San Francisco, also warns keeping company tax at 33% would encourage local firms to head overseas.
Jim O’Neill says shifting the tax rate down to 15% would give us an advantage over the Australians but only bring us in line with overseas practice.
Finance Minister Michael Cullen says the review is meant to stimulate debate and no major change would be made until after the 2002 election.
Submissions can be made until August 1 for a final government report in October.