NZ ports get no tax breaks for channel changes
NEW ZEALAND ports are disadvantaged because Inland Revenue will not allow tax concessions for deepening shipping channels, tax experts say.
There have been warnings in recent weeks that New Zealand exporters will become less competitive against international rivals in coming years, because most of the ports cannot cope with the new generation of larger container ships being built.
Corporate services firm PwC has revealed details of lobbying it did on behalf of New Zealand’s ports back in 2009. It called for the cost of dredging to be depreciable over 50 years, or over the useful life of the channel assumed by the port for accounting purposes.
Unlike many jurisdictions, ports in New Zealand are unable to claim tax deductions on dredging to deepen shipping channels.
PwC partner Chris Leatham said that, at a time when the Government was trying to ensure that exporters were competitive, New Zealand ports faced added costs compared to those in its trad- ing partners. ‘‘Virtually all other countries do have a deduction for this sort of expenditure, including Australia, whereas we don’t, so at the moment the ports face a competitive disadvantage.’’
According to the PwC analysis, Australian ports can claim a depreciation deduction over the period the asset is expected to produce income, and in Japan dredging costs can be depreciated over just seven years.
PwC director Mark Chapple said IRD’s response to the proposals in 2009 was ‘‘initially, very favourable’’ with its policy team appearing to accept the arguments it put forward.
‘‘The [revenue] minister was involved, and there was a focus on putting together some draft legislation.’’
However, last year policy officials said they had concluded that shipping channels were not ‘‘wasting assets’’ and therefore did not depreciate.
PwC believed the change of tack related to the weak economic recovery, with IRD unwilling to make changes which would have a fiscal impact.
Inland Revenue said in a statement that it had considered the issue in 2011 and concluded the case for deductions ‘‘could not be supported’’.
‘‘Inland Revenue engaged independent advice and determined that new dredging is carried out by deepening and widening the existing channel and sig- nificant cost savings arise by extending its dimensions.
‘‘Where this happens, the existing channel is incorporated into the new channel and continues to be valuable to the business. ‘‘It is deemed to be not ob- solete and therefore not preciation.’’
Chapple said he expected there to be another push by the industry on the issue when a major dredging project was imminent.
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