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FBT rate cut welcome, though real issues remain

Friday, April 29th, 2005

FBT rate cut welcome, though real issues remain

Business welcomes the proposed cut to Fringe Benefit Tax announced today, and the contribution towards PAYE compliance costs imposed on small businesses with up to five people, even though the inequity of FBT has not been addressed.

“The annual FBT on an car purchased for $35,000 will come down from $8400 to $7000 a year and that’s welcome,” said Alasdair Thompson, chief executive of the Employers &Manufacturers Association (Northern).

“But considering that company cars available for private use are mainly used for business, the tax of $7000 still assumes the private use value to the employee is an extraordinarily high $17,949 per annum (based on the marginal income tax rate of 39 cents).

“The fairest and simplest way to treat all fringe benefits would be to include their value as ordinary earnings to be taxed at the appropriate marginal income tax rate, once the private use part of the benefit was set under a fair and reasonable formula.

“The option of paying provisional tax in two six monthly instalments based on GST returns is also a welcome step.

“While business will be pleased with these modest changes, the real investment blockage is the high New Zealand company tax rate.

“As a withholding tax, this should be reduced substantially to encourage businesses to retain far greater levels of profit re-investment, thereby growing their productivity and capacity, and lifting the incomes of all New Zealanders.”


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