Wong Pansy: Taxation (Base Maintenance  and Miscellaneous Provisions) Bill — Second Reading Instruction to Committee In Committee 
Wong Pansy: Taxation (Base Maintenance  and Miscellaneous Provisions) Bill — Second Reading Instruction to Committee In Committee 
[Volume:626;Page:21448] 
PANSY WONG (National) 
: 
 As various members mentioned in their second reading speeches this legislation contains three major issues. I would like to start with one of the most high-profile issues that this legislation seeks to address which is the thin capitalisation provision. That means that a foreign-owned bank would have to measure its equity financing against a yardstick of 4 percent. I understand that the Inland Revenue Department has carried out individual negotiations and consultations with the various trading banks. I must say that National is sceptical as to whether the annual taxation revenue will increase by $360 million. We all know as my colleague Lindsay Tisch and various other members have pointed out that if there is a high income tax break then people and entities can prepare themselves for that with tax consultants and tax lawyers all trying to minimise the tax paid and that that is legitimate. There are legitimate ways to minimise tax payments. 
But there is a further complication to this issue. The bill went into a lot of technical provisions to establish the formula to calculate the equity etc. The Finance and Expenditure Committee deliberations were quite interesting. We were looking at Supplementary Order Paper 337 in the name of the Hon Dr Michael Cullen which was brought to the select committee and the Inland Revenue Department pointed out correctly the complicating issue about financing instruments. New types of debt instruments are being created every day. The Inland Revenue Department first came to the select committee to seek the regulatory-making power to declare whether a certain new financial instrument would be classified as debt or as equity. It was just as well that we had help from the regulatory select committee which brought it to the attention of the Finance and Expenditure Committee that the original Supplementary Order Paper contained powers that were too wide. It was almost as though Parliament was giving away the power of determining the taxation level to the Inland Revenue Department and the department concurred with that advice. 
I would like the Minister to take a call to assure us—because Supplementary Order Paper 378 in the name of the Hon Dr Michael Cullen is very technical in terms of its drafting—that indeed that Supplementary Order Paper now contains a provision that does not subject Parliament in a de facto sense to giving away the power to set the taxation rates because the department can determine whether an instrument is a debt or an equity. We have given the department a narrow power because we appreciate that the banking and commerce sectors will come up with financial instruments and will need clarification of their status from the department in a relatively short time. So I want the Minister to take a call to assure us that the amendments on that Supplementary Order Paper in terms of that regulatory power do nothing but simply clarify whether a financial instrument is regarded as debt or as equity. Members can appreciate that with a bill of 170 pages that contains a lot of technical provisions the select committee relied on the officials to understand it and to preserve the integrity of the intention of the bill’s provisions. I want to make sure the Minister can assure us that we have not given away the power of Parliament’s right to set the taxation level. 
I will now move away from the thin capitalisation rule. I also want to point out that we do welcome the provisions for deductions for example for expenses relating to patents etc.