Withholding tax may be lowered

Press, 22 June 1989, Page 27

Withholding tax may be lowered

By

PATTRICK SMELLIE,

in Wellington

The strongest hint so far that the Government will drop the rate of the new withholding tax on interest and dividend income was given in Auckland yesterday by the Associate Minister of Finance, Mr Neilson.

The proposed rate for the next tax in 28c in the dollar. But submissions to recent select committee hearings have unanimously called for the rate to be set at 24c in the dollar or lower.

At 28c, many low income earners would be over-taxed, creating the need for tax returns from people, including children, who would not otherwise need to make them.

“One thing I can say is that I know the Minister of Finance is not dying in a ditch over the rate,” Mr Neilson told a tax seminar.

“The rate of 28c, which appears in the Bill, was pitched at the level which meant the fewest people would have to pay more or less tax on their interest income at the end of the year.”

Mr Neilson also continued to indicate the Government will give some relief from land tax in the Budget next month. In the longer term, he said the tax did not fit comfortably within

the general trend of taxation reform.

While local authorities were able to charge rates, the Government should continue moving away from taxes like land tax in favour of a comprehensive tax on all forms of income including capital gains tax.

“The concerns about the excessive accumulation of wealth that gave rise to the introduction of land tax last century or support for other taxes on wealth would seem to me to be better addressed by having inheritance taxes,” he said. Taxation of life and medical insurance offices, friendly societies, and credit unions was also under active review.

The report of a consultative committee on a new regime for these areas was expected within the next month, said Mr Neilson.

Consultation was also continuing on new regimes for petroleum and mineral mining. But he held out little hope of

rationalising the Income Tax Act in the near future.

While a complete rewrite of the Act was necessary, “there are a few areas which need to be included to bring the process to completion,” said Mr Neilson.

He suggested also the formation of a new Tax Commission to formalise the consultative process of tax reform.

It would have private sector and Government representation, possibly with revolving membership, he suggested.

Looking to the future, Mr Neilson predicted consumption would eventually be taxed mainly through GST, rather than the array of excises which still exist.

But tax on tobacco, alcohol, and gambling, along with special levies such as that on petrol for road construction, and payroll taxes for accident compensation would remain in place, he predicted.