Capital gains tax pains would not be worth it
One of the most annoying things about the 2011 election was Labour’s policy to exempt fresh fruit and vegetables from the imposition of GST, which would have been an administrative nightmare. Not everybody agreed with that assessment. ‘‘It’s all done by computers’’ was a common response. But it was noticeable that a lot of the people saying that tended to draw a salary from the government or a large corporation rather than a small or medium-sized enterprise.
But stores would have had to change the way they work to charge differing levels of GST. That’s not something to be sneezed at. But it’s only the beginning of the difficulties.
You see, the basic idea of exempting fresh fruit and vegetables is deceptively simple. Working out just when the tax would apply and when it would not, on the other hand, is anything but simple. How fresh do fruit and vegetables have to be for the IRD to consider them exempt? At what point do things intend to extend shelf-life tip fruit and vegetables over into non-freshness?
Such questions are often dismissed as mere ‘‘details’’. They are not things for politicians to be able to answer, but matters for innumerable working groups to finesse and determine. But when you’re talking tax, details matter.
Details can be expensive. In Britain for example, a value added tax (or VAT) has applied to certain hot takeaways since 2012. The rate was 20 per cent, This is a significant amount of money when you consider how much hot food is bought every day.
The details have proved important to Subway franchisees, because sandwiches in that chain may be sold heated or cold depending on customer preferences. So if a customer asked for the former, did the store have to charge and return an additional 20 per cent on the sale price? Billions of pounds were at stake for the thousands of small Subway owner-operators in the country.
It seems settled now that the tax is payable in these circumstances. Getting to this point involved five years of argument and court battles about things like the ‘‘above ambient air temperature’’ of subs and their contents. This reasoning did not apply to Mcdonald’s, whose offerings were not subject to the tax – because complicated rules tend to create inconsistent outcomes.
There is a trend towards complex forms of regulation in New Zealand too.
The last government enacted a wide-reaching extension to the Anti-money Laundering and Countering Financing of Terrorism Act 2009. The rules took effect on July 1 and currently apply to law firms. Accountants will be captured shortly and real estate agents come under the regime from the start of next year. The cost of compliance to small businesses has been significant.
As the commencement date neared, it became clear it was impossible to comply with aspects of the law. Right into the final hours of the last Friday of June, the Department of Internal Affairs were emailing advice and clarifications to practitioners for implementation the next working day. It has been incredibly stressful for lawyers and their clients.
I won’t bore you with all the details, but at present, the rules mean it is not practical to create a new law firm that undertakes conveyancing work. This will remain the case until defects in the rules are fixed. Which is shocking.
None of this is the fault of the Department of Internal Affairs. They are just trying to implement the legislation that Parliament bequeathed them. Any blame lies at the feet of the politicians.
I actually considered voting based on the issue last year. Unfortunately, the only party that showed any interest in listening to the concerns of the Law Society was the NZ Outdoors Party. So much for the friendliness of the National and ACT parties to small business.
New Zealand is, once more, having a debate about the merits of introducing a capital gains tax (or GGT). If one were to be enacted, you could take the uncertainties, vagaries and compliance costs of the above and multiply them by 100. They are among the most inefficient, resource hungry and complex forms of taxation.
Almost all of my family wealth is tied up in our four-bedroom mortgage, so I would not be directly impacted by the imposition of a CGT of the type Labour wants. Relative to my older, richer friends, I would do well out of a CGT if it meant income taxes were reduced.
But I do oppose it – because the meagre amounts of revenue it raises would just not be worth the confusion, stress and unfair complexity it would bring with it.