Fringe benefit tax bill sent to select committee

Press, 19 December 1984, Page 8

Fringe benefit tax bill sent to select committee

PA Wellington A bill giving effect to the fringe benefit tax proposed in the Budget was introduced in Parliament that evening.

The 50-clause Income Tax Amendment Bill (No. 2) also increases penalties for late payment of tax and provides for the phase-out of export incentives. The provisions would apply from April 1, 1985. The Minister of Finance, Mr Douglas, said the fringe benefit tax followed the broad detail of the Budget announcement, except in one area.

Shareholder employees would not be subject to the tax in relation to benefits provided to them in that capacity, he said. In a press release he said that the Government felt the current tax treatment of shareholder employees was adequate for the time being. Mr Douglas also distributed an information paper on the new tax.

The tax rate would be 45 per cent of the fringe benefits and would be paid by the employer quarterly, it said.

Fringe benefits included “the private use or enjoyment’’ of a vehicle, lowinterest loans, and free, subsidised or discounted goods and services.

The value of a fringe benefit would be in general the difference between the fair market value of the benefit and the amount paid by the employee, the paper said.

For example, the fair market value of a vehicle would be determined by the formula: the number of days the vehicle was used priv-

ately, divided by 90, and multiplied by 6 per cent of the cost price of the vehicle. Mr Douglas said information booklets explaining the fringe benefit tax would be sent to all employers. The Income Tax Amendment Bill also provides for a further late payment penalty of 10 per cent every six months on P.A.Y.E. tax not deducted, or income tax not paid. A penalty of 10 per cent is already incurred when the default initially arises.

Mr Douglas said the full range of export incentives would continue to apply for the year until March 31, 1985.

The rate for 1986 would be reduced by 50 per cent, with a similar reduction in 1987, bringing the rate down to 25 per cent of the 1985 level. The incentives would not be available from 1988. The bill also contained three amendments to ensure exporters did not manipulate their affairs to gain incentives during the phase out that they would not otherwise be entitled to, he said.

The Junior Opposition Whip, Mr Cox, said the Opposition had 18 minutes to read a copy of the 50clause bill.

The Opposition had “very reluctantly” agreed to let the bill go to a select committee, so that it could hear the submissions of the people affected. But it would oppose the bill “further down the track,” he said. He described as stupid the Government’s decision to accept submissions only

until January 25. “Every businessman who is affected by this bill is probably going to be away on the great New Zealand shutdown,” he said. “What is the point of it? Does the Minister not want to listen? “I believe if he does listen to the people who are going to be affected by this bill he will withdraw it — because it is a shambles.”

Mr Cox said the fringe benefit tax was a legislative and administrative nightmare and would be impossible to police. He suggested that 600 more public servants would be needed to supervise it. Mr Cox suggested the bill would add 1 per cent to already high inflation because it would pass on $3OO million in extra costs to the community. He asked how long businessmen would employ additional people when they were hit by extra taxes and he said Air New Zealand’s profit next year would be down because it would have to pay tax on the cheap travel given to its employees. The Parliamentary Under-Secretary to the Minister of Finance, Mr de Cleene, said he was pleased the bill was going to a select committee where the public would have the chance to make an input into an amazing breakthrough in tax legislation. New Zealand was one of the few Western countries that did not already tax fringe benefits.

The Opposition spokesman on finance, Mr J. H. Falloon (Nat., Pahiatua) suggested the bill would

result in a loss of jobs and entrepreneurial people, and the introduction of anomalies in taxation.

Cutting away at fringe benefits would be seen to be unfair to certain groups because it would not apply to heavily subsidised cafeterias and superannuation schemes. It would avoid the mainstream of the Public Service but apply heavily to the small businessman. Mr Falloon said some important economic changes, the abolition of export incentives, ran the risk of stopping investment in its tracks.

He suggested a major anomaly was that a person who used an office car only to go to and from work would incur the same amount of tax for his employers as a taxi-driver or stock agent who had little private use of his work vehicle.

r Peter Neilson (Lab., Miramar) said the bill tried to put equity into the tax system. The Opposition was particularly worried about fringe benefits because most people getting higher incomes had packages with major items that were not now taxable. The Government was not trying to outlaw that but simply to get those people to make a fair contribution. Another issue that would hit people who were in higher income brackets was the requirement that people in disputes with the Inland Revenue Department would be told to pay the amount in dispute, and, if they then won their argument, the money would be returned,

with interest. Sir Robert Muldoon (Nat., Tamaki) said that this provision could cost businessmen a portion of their capital for the duration of arguments that could go on for years. He also said the bill would be a bonanza for accountants and lawyers. “Oh, I’m all right — I’m practising again now,” he told Parliament. But it was not good for the taxpayer and was clearly bad legislation. The Chief Government Whip, Dr M. J. Cullen, said the fringe benefits tax would bring in $3OO million a year, equivalent to 11 per cent of the present deficit. The Chief Opposition Whip, Mr D. C. McKinnon, said it had been the Opposition’s intention totally to oppose the bill, but it had decided to support the introduction because that was the only way it would be referred to a select committee where members of the public could make submissions. He called on anyone listening to the debate who used a company car; had a low interest-loan through a bank or insurance company, or received travel benefits through work for Air New Zealand to write to the Select Committee on Commerce to say why fringe benefits tax should not be introduced. The bills were introduced on a 44-34 division and referred to the Commerce and Energy Select Committee.