12 Dec 2022

Lower tax rates may boost foreign investment - Specialist

8:02 am on 12 December 2022
Businessman analyzing investment charts with laptop

A tax expert said lowering company tax rates could benefit the economy. Photo: 123RF

Embracing more foreign investment by removing tax barriers could pay off in the long term according to a tax specialist.

The Inland Revenue's Long-Term Insights Briefing has proposed looking at the country's current tax settings to see whether lowering the company tax rate would benefit the economy.

Tax partner Matt Bonner at Baker Tilly Staples Rodway believes this would bring New Zealand into line with other OECD countries.

"By reducing the corporate tax rate you might get a bit more interest in foreign investment," he said.

However he warned the negative impact would be a significant reduction in the overall tax take.

"For the year, 30 June 2022, the current corporate tax take at 28 percent was $17.5 billion.

"If it was lowered to say 25 percent that would reduce that tax take to $15.7bn.

"And if it was lowered to 23.1 percent which is the OECD average rate, that would reduce the tax take to $14.5bn."

"Obviously that leads to a significant reductions in tax revenue which would need to be weighed up against whether that is going to increase investment."

Bonner said the IRD would need to find ways to boost revenue in other areas such as increasing withholding tax on dividends paid to foreign shareholders.

"When the dividend is paid out to the foreign shareholders, perhaps a withholding tax could be introduced at that point, so that we do get a bit of tax back on the profits when they leave the country."

By way of comparison, the company tax rate was as high as 48 percent in the 1980s progressively coming down to 28 percent, but he doesn't see it increasing any time soon.

"I certainly can't see the corporate tax rate getting increased," he said.

While New Zealand's corporate tax rate is above the OECD average, Australia's is higher still.

"Over the ditch with our Australian neighbours, their corporate tax rate is 30 percent but they do have a lower tax rate of 25 percent for small and medium size businesses with a turnover of less than $50 million," he said.

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