Valabh Committee

The 1980s were a period of considerable economic and tax reform in New Zealand. New Zealand had never had a formal capital gains tax system (unlike virtually every other OECD nation. The government was considering implementing a capital gains tax and issued a consultative document ^[2] as part of the (then) process of tax reform.^[3]

The Committee appointed to review submissions, in response to the Consultative Document, instead reported to government that it did not consider the state of the tax system at that time sufficiently robust enough to support additional reform of this nature. The government accepted this recommendation and re-tasked the committee to advise it on the structural reforms required.

The Committee subsequently published 5 discussion papers:^[3]

• The Core Provisions of the Income Tax Act 1976 (Core Provisions Paper) ^[4]
• The Taxation of Distributions from Companies (Company Distribution Paper)
• Tax Accounting Issues
• Key Reforms to the Scheme of Tax Legislation (Key Reforms Paper) ^[5]
• Operational Aspects of the Accrual Rules

In addition the Committee separately reported to government on the reform of the tax depreciation rules.^[6]

The thrust of the Core Provisions and Key Reforms Papers was to ensure that the income tax legislation was appropriately structured and ordered to facilitate the understanding of the rules as well as to allow for further reform to be implemented effectively.

This work lead directly to the Working Party on the Reorganisation of the Income Tax Act 1976 and the complete rewrite of the legislation.^[7][8]

The proposals made in the Company Distribution Paper led to a revised definition of what constituted a dividend under New Zealand tax law as well as the introduction of a small company taxation regime (“qualifying company” regime).^[9]

The committee's recommendations resulted in a new tax depreciation regime introduced in 1993.^[9]

The government accepted the committee's recommendation for a significantly more liberal regime for the deduction of interest for tax purposes.^[10]

Recommendations for the reform of the tax treatment of partnerships was finally implemented by government in 2007 ^[11][12]