RFRM would raise more revenue

The government has put off implementing the ‘risk free rate of return’ (RFRM) method of taxing investment for at least another year.

A discussion document on the issue will be issued later this year or early in 2003, and the industry will be consulted on the subject, according to a spokeswoman for Finance Minister Michael Cullen.

The method was first touted in the McLeod Tax Review as a way of cutting through the myriad ways in which New Zealand investments overseas are currently taxed.

Inland Revenue and Treasury officials have reported back to the minister on the issue, and earlier indications were that there would be something in last week’s Budget on the issue.

However, Dr Cullen has decided more work is needed. It is understood that the official advice was that the method would reap more revenue than the current methods of taxing investments.

"The indications we have is that it would be revenue positive for the government," Dr Cullen’s press secretary Patricia Herbert says.

"The minister isn’t entirely comfortable with that."

The government intends to consult widely on the issue, she said. Any changes would not be implemented until the 2003/04 year at the earliest.

The government is not looking at applying the method to businesses that invest as the main facet of their activity - it is to be confined to private investments.

Rob Hosking is a Wellington-based freelance writer specialising in political, economic and IT related issues.

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