Firms want end to fringe benefit tax

By KEVIN TAYLOR

A leading business organisation wants the Government to axe fringe benefit tax.

The northern branch of the Employers and Manufacturers Association, which has thousands of member firms, says there is no longer any reason to keep the tax.

Instead, it says, employee perks should be taxed as personal income and absorbed into the pay-as-you-earn (PAYE) system.

Inland Revenue is reviewing fringe benefit tax (FBT) this year, including whether the employer or employee should pay it.

Getting rid of the tax altogether is not on the table.

The tax was heavily criticised in a major report released last July on the compliance costs businesses face. The report's authors, a panel of businesspeople, called for a wide-ranging review, but did not go as far as seeking its abolition.

One major criticism is its complexity. Fringe benefit tax is charged in four bands ranging between 18 and 64 per cent, depending on the income of the employee getting the benefit.

Association chief executive Alasdair Thompson said calculating and collecting the tax represented a substantial cost to businesses, especially small and medium-sized firms.

All employee benefits, like cars, low-interest loans, low house rents and health insurance, should be taxed as personal income and absorbed into the PAYE system.

"This would immediately simplify the tax system and reduce compliance costs.

"While the change would involve employers paying their staff more to cover the tax on fringe benefits, they would then no longer have to pay the direct cost of FBT nor involve themselves in the costs of compliance."

Mr Thompson said tax revenues would be unaffected.

"The tax rules applying to these various categories of rewards and remuneration currently treated as FBT are now well known and should no longer be treated separately."

He said axing the tax would address several recommendations made by the panel on business compliance costs.

The panel did not suggest the tax should go, but criticised it as a "gold-plated" tax system.

The panel recognised the need for a fringe benefit tax regime to maintain the integrity of the PAYE system, but said it should be imposed only on major benefits - like cars - and at a single average rate.

One panel recommendation was to base the value of perk vehicles on their depreciated cost, which would more closely reflect the market value of the benefit.

Inland Revenue policy general manager Robin Oliver said the review would look at whether employer or employee should pay the tax.

With the tax contributing about $350 million annually to Government coffers, getting rid of it altogether was not an option.

Business complaints about the valuing of vehicles would be studied. Depreciation of vehicles is not factored into the tax.

"That has been raised on many occasions, so we need to look at that," Mr Oliver said.

The review would not translate into draft legislation until next year.