Concern over rush job on tax law

Plans to rush through complex and fundamental changes to the international tax laws have come under fire from accountants.

A select group of organisations and individuals have been asked to make fresh submissions on draft legislation containing an alternative to controversial and now abandoned plans to impose a capital gains tax on overseas share investments.

Faced with widespread and fierce opposition to its original plan, the Government last month suggested an alternative to tax individual investors on 5 per cent of the value of their overseas portfolio at the start of the year.

If they made a return, including any dividends paid, of less than 5 per cent they would pay tax on that lower amount and if their returns were negative there would be no tax.

Parliament's finance and expenditure in an interim report back to the House yesterday said that while submitters preferred the new approach, they were reluctant to support it until they saw details.

Officials have now drafted legislation and "certain individuals and organisations" have been invited to make submissions on it by November 12.

Select committee chairman Shane Jones said the Institute of Chartered Accountants and the Law Society were among them and the committee was confident it would get the breadth of view that had been represented among the original submitters.

The tax bill, which incorporates some investor-friendly changes as well, is due to be reported back to the House by November 24.

But accountants warn of the risk of legislating in haste and repenting at leisure.

"Whatever is finally introduced, if we continue down this path, will be part of the legislative landscape for a considerable time," Deloittes managing tax partner Thomas Pippos said.

"We should not be stuck with the wrong answer just because it is better than the previous plan. Given the more favourable fiscal conditions that exist at the moment, the right answer should be determined on a principled basis, not some compromised variant of original proposals that created various new problematic distortions and boundaries."

Bruce Sheppard of Gilligan Sheppard said the new approach fundamentally altered the way capital was taxed.

"It is an asset tax. That is a major structural change and it will not sit easily in the Income tax Act. It will be complex and they are doing it in haste, which means it will not work. There will be loopholes for Africa."

It was also a corruption of the tax lawmaking process, Sheppard said.

"This is just dressed up urgency, and the last time we had tax law made under urgency was in Muldoon's day."

Gordon Price of Grant Thornton said the proposed changes needed to be considered in tandem with the forthcoming review of another part of the international tax regime, the controlled foreign company or CFC rules, which might introduce a distinction between active and passive overseas holdings.