Govt hopes to recoup $150M in lost taxes

Press, 13 October 1982, Page 1

Govt hopes to recoup $150M in lost taxes

Parliamentary reporter Big changes to legislation on tax avoidance, designed to spread the tax burden and recoup up to $l5O million in lost taxation revenue, were introduced by the Government yesterday.

The Income Tax Amendment (No. 2) Bill had been designed to curb the growing tendency for some taxpayers to avoid meeting their fair share of the tax burden, said the Minister in charge of the Inland Revenue Department, Mr Falloon.

The bill followed up measures announced in the Budget, and was described by Labour Opposition speakers as “a real backoff.”

Big reprieves from Budget tax measures covering farm and business properties, partnerships, and syndicates are contained in the bill.

Interest recovery provisions on the sale of property will now apply from sales made on or after April 1 next year, not this year as the Budget said, and the intention to treat partnerships and syndicates as companies for income tax purposes will not now proceed.

The bill would remain in Parliament until the very end of the session, said the Prime Minister. Mr Muldoon. This was so that interested parties, and those with valid complaints that it unfairly penalised some taxpayers, could make submissions on what was part of an extremely complex package of taxation measures.

Mr Muldoon acknowledged that some amendments would still have to be made, but he rejected a Labour call that the bill go to a Parliamentary select committee. Sir Basil Arthur (Lab., Timaru) referred to the "stampede" of farmers to the Minister's office, since the Budget announcement, as being unprecedented. Other Labour speakers echoed his remarks. Both sides of Parliament ought to be able to hear the valid submissions the Prime Minister expected, said the Leader of the Opposition (Mr Rowling), and he called for the bill to go to a select committee. Mr Falloon said it had become necessary to do something about tax-avoi-

dance practices which undermined the tax base itself and, by implication, the revenue. They damaged the integrity of the tax system. Tax-avoidance practices were naturally resented by other taxpayers, who saw themselves as thereby forced to bear an undue share of the tax burden.

He aimed specifically at the recent trend of high income earners investing in land-based activities with the aim of tax-sheltering through the offset of losses against their principal source of income.

Such taxpayers had been able to gain an undue advantage through the tax system. First, by the conversion of income into non-taxed capital gains on the sale of the property; and second, through the deferral of u’hat was considered to be their proper tax liability, often for a significant number of years. The Inland Revenue Department had information on various categories of such investors which showed that in some cases the payment of tax had become voluntary. This was clearly an untenable situation, Mr Falloon said.

One sample survey of 633 professional people, who would normally be classified as farmers, had shown that the offsetting of losses was only partly related to development expenditure.

Interest deductible on the purchase of the property and other borrowing, in the sample, was 14 per cent of the loss. The write-down of the livestock was 37 per cent, and development expenditure 22 per cent. ' The survey had shown that the average amount of loss deducted against personal or professional income was $19,224, with 24 greater than $lOO,OOO. A further breakdown of the losses offset for kiwifruit investments in the survey showed that 14 per cent of the loss had been for interest and 31 per cent of the loss

for development expenditure, he said.

Although some of the remainder could well have been for development through wage costs, the tax subsidy was used for. far more than development of resources.

The shelters these people

were involved in had transferred losses of 812.169 million in the tax year ended March. 1981, to be offset against other income, Mr Falloon said.

Types of tax shelter covered in the survey included farms, films, leasing arrangements, rentals, and export partnerships. The positions of individuals had been kept confidential. It was not possible to estimate the total tax sheltered by such mechanisms. but estimates pointed to between $lOO million and $l5O million, he said. There was, in effect, a 60 per cent subsidy on such investment throughout the tax system. With the measures introduced, development would continue. But it would be on the basis of what the investment could produce from the land, and not on what deferred tax or tax-free profits could be generated by shelter arrangements.

Mr C. J. Moyle (Lab., Hunua) said New Zealand would see a huge move in land speculation over the next seven months because anyone who bought or sold a farm before March, 1983, would not be affected by the provisions in the bill, there would be a "bonanza" in land sales.

Mr G. T. Knapp (Social Credit, East Coast Bays) said the bill was an enormous retreat by the Government. It had responded to a sharp “sting" from the electorate once the implications of this year’s Budget announcements had sunk home.

The bill was given its first reading in Parliament without the Opposition opposing it.

Details, page 11