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New Zealand's Tax System Beats Competition On Simplicity

New Zealand's Tax System Beats Competition On Simplicity
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New Zealand's Tax System Beats Competition On Simplicity

When the league tables that rank jurisdictions by regulatory and tax simplicity emerge you can expect to see the likes of Singapore, Hong Kong, and the UAE in the top spots. But, on balance, it’s more often New Zealand that steals the limelight.

Tax Foundation

In its 2017 International Tax Competitiveness Index, the Tax Foundation, a US tax policy think tank, highlighted New Zealand as the country that had implemented particularly positive reforms.

The Tax Foundation observed that the structure of a country's tax code is an important determinant of its economic performance, and that a well-structured tax code “is easy for taxpayers to comply with and can promote economic development, while raising sufficient revenue for a government's priorities.”

"New Zealand is a good example of a country that has reformed its tax system," it said, observing how, in response to tax global trends, New Zealand cut its top marginal individual income tax rate from 38 percent to 33 percent, shifted to a greater reliance on the goods and services tax, and cut its corporate tax rate to 28 percent from 30 percent.

"New Zealand added these changes to a tax system that already had multiple competitive features, including no inheritance tax, no general capital gains tax, and no payroll taxes," the Tax Foundation highlighted.

Related: New Zealand GST Tax On Digital Downloads

Paying Taxes

PwC’s latest Paying Taxes Index, which attempts to measure how easy (or difficult) it is for the average mid-sized company to discharge its tax obligations in a given jurisdiction, supports the Tax Foundation’s view that New Zealand’s tax regime is generally favourable for businesses.

In its recently published ranking for 2018, New Zealand was placed a creditable ninth out of 189 territories, placing it ahead of all other OECD member countries with the exception of Denmark, in terms of ease of paying taxes.

According to the Paying Taxes 2018, mid-sized businesses in New Zealand spend just 140 hours per year on average on tax compliance. And while this may sound like a long time in isolation, it is well below the global average of 240 hours. Indeed, when compared with some South America economies, paying taxes in New Zealand is a relatively simple exercise. Businesses in Brazil spend on average almost 2,000 hours per year on tax compliance annually!

Related: New Residence & Ownership Rules For New Zealand Companies

Doing Business

Even more impressive perhaps is that as an overall business location, New Zealand is hard to beat. Indeed, the World Bank ranked the country in first place in its annual most recent Doing Business Index, ahead of the likes of Singapore (2nd), Hong Kong (4th), the United States (6th), and the United Kingdom (7th).

According to the World Bank, not only has New Zealand made paying taxes easier by improving the online portal for filing and paying general sales tax, it also has a single procedure that a prospective business need undertake to form, and the process is typically completed in less than a day.

Related: New Zealand’s Business Growth Agenda

Uncertainty

So, with its well-regarded tax, legal and regulatory framework, New Zealand would appear to have a clear advantage over many of its competitors. The corollary of that is that it’s easy for the country to slip down the league tables, and harder for it to eke out further improvements. With the new Government establishing a new tax reform working group to propose changes to improve the “fairness” of the tax regime, it’s a case of waiting to see what emerges from that exercise.

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