Fringe tax plans likely to appeal

The National Party's plans to overhaul the fringe benefits tax system are likely to prove popular with employers, says PricewaterhouseCoopers tax partner John Shewan.

National's finance spokesman, John Key, yesterday outlined several changes intended to make life easier for firms paying the tax, without compromising the integrity of the FBT system.

Employers will have the option of valuing vehicles either at their original cost or at their tax-written-down value, which would roughly approximate their market value.

Shewan said that would be popular, as would the plan to eliminate the complex record-keeping necessary to calculate different rates of FBT for different employees, depending on their individual top marginal income tax rates.

Instead, a single rate of 33c in the dollar will apply.

"The Government would probably say that undertaxes people on higher incomes and overtaxes those on lower incomes. But the reality is, this tax is paid by employers, not employees, and it should even out overall," Shewan said.

The compliance costs involved with multiple rates drove people crazy.

Key said National would also raise the minimum thresholds at which the tax applied to "other benefits", a category that includes the likes of laptops and mobile phones. The thresholds are $75 an employee and $200 an employer a quarter. They would be raised to $200 and $2000 respectively.

And National would scrap the proposal to extend FBT to car parks supplied on an employer's premises. This proposal is especially unpopular in provincial cities where the value of such parking spaces is low and hard to determine.

The Government is expected to drop that proposal anyway in the FBT changes to be announced in the the May 19 Budget.

Key said the National policy would reduce the FBT take by about $45 million a year.

Many of the streamlining measures had been proposed in a Government discussion paper but, because of a requirement that the changes be revenue-neutral, it also included the on-premises car park proposal.

Key said Finance Minister Michael Cullen had subsequently dropped that requirement of fiscal neutrality and indicated that the FBT changes in the Budget would also cost about $40 million to $50 million.

But, said Key, Cullen had had six years to come out with a business-friendly policy.