Global Tax Rates
Inland Revenue made the headlines end of April 2023 with the release of its report on the amount of tax paid by our high-wealth individuals (HWIs). The findings were that HWIs’ overall effective tax rate when taking into account all sources of income, including unrealised capital gains, is 8.9%. The Treasury simultaneously released a number of reports which investigated the progressivity of New Zealand’s tax system. The Treasury found, using information from the Household Economic Survey, that an average middle-income New Zealander has an effective tax rate of more than double the HWI rate, at 20.2%.
When comparing these numbers at face value, it is no wonder the difference caused a reaction. However, without a comprehensive capital
gains tax regime to tax the gains on sale of land and shares, the rate of 8.9% is not particularly surprising.
How do our tax rates compare to the rest of the world? Unfortunately, no other country has recently undertaken a similar exercise on the effective tax rate of HWIs, but it is possible to compare our other tax rates against the world’s heavy hitters:
• Ivory Coast’s highest personal income tax rate (i.e. tax on an individual’s salary and wages) is an eye watering 60%. New Zealand’s top personal marginal tax rate increased from 33% to 39% from 1 April 2021.
• The highest corporate tax rate goes to Puerto Rico, at 37.5% - higher than New Zealand’s corporate tax rate of 28%.
• The highest sales tax is in Bhutan, at 50%. Our equivalent tax, GST, pales in comparison at 15%.
• Denmark has the highest capital gains tax at a rate of 42%. At this point in time, New Zealand does not have a broad-based capital gains tax.
Proposed amendments to director’s duty
One of the fundamental director’s duties within the NZ Companies Act 1993 (‘the Act’) is to act in good faith and in what the director believes to be the best interest of the company. This has traditionally been interpreted to mean decisions should be aimed at maximising shareholder returns. In September 2021, an amendment was proposed to make it clear that directors of companies can consider a wide variety of factors, such as:
• recognising the principles of the Treaty of Waitangi (Te Tiriti o Waitangi),
• reducing adverse environmental impacts,
• upholding high standards of ethical behaviour,
• following fair and equitable employment practices, and
• recognising the interests of the wider community.
On 8 May 2023 the Select Committee recommended that the list above is not enacted, but instead replaced with the following:
“To avoid doubt, in considering the best interest of a company or a holding company for the purpose of this section, a director may consider matters other than the maximisation of profit”
This addresses submitters’ concerns that the original drafting of the bill may create inconsistencies within the Act, as well as confuse directors about their responsibilities. Further, some submitters felt that the law already allows a director to consider non-financial factors when deciding the best interest of a company.
We will wait to see what is ultimately enacted.