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Government Tax Policy Slammed BY OECD

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Government Tax Policy Slammed BY OECD

A new report, Economic Policy Reforms 2013, from the OECD highlights the low funding of business research and development in New Zealand. The report calls for the government to reinstate R&D tax credits. These tax credits were abolished by the National government because it was thought that there was scope for the misuse of the tax credits, and also because the government needed the funds from the tax credits to pay for income tax reductions and because of lower than expected Treasury forecasts.

Abolishing tax credits that incentivise desirable economic activity is like firing your sales people who earn the highest commission income (yes we have seen this done). Such actions reduce future income and send the wrong signals.

Issues around the misuse of R&D tax credits could be dealt with by tighter rules around the recharacterisation of expenses and by limiting the tax credits to new R&D spending.

Andersen Accountants believes that the government should reinstate the credits without delay.
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