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Tax changes - how real are the incentives to forestry?
Authors: Andres KatzPublication: New Zealand Journal of Forestry, Volume N.Z.J.For. 1991, Issue N.Z.J.For. 36(2) 1991, pp 18-22, Aug 1991
Publisher: New Zealand Institute of Forestry
Abstract: The effects of the current and proposed tax regimes on forestry were evaluated using discounted cashflow analysis. Results clearly show how the current tax shield on asset growth provides returns that are significantly higher than those subject to a neutral income tax. Benefits are further enhanced by allowing current year deductibility of costs. However such tax induced changes to profitability tend to be capitalised into the value of land, and so benefits of the proposed tax changes will accrue only to land already held for afforestation. For new areas, current year deductibility is offset by higher prices. Thus the proposed tax changes will provide little real financial incentive to increase planting rates.
The market for immature forests is an important mechanism by which risks arising from the long-term nature of forestry can be reduced. The buyer's and seller's offer prices for mid rotation forests under alternative taxation regimes are analysed, and results show the inhibitory nature of current forestry taxation on the development of this market. The proposed tax regime further disadvantages trading of immature forests. Better tax treatment of such transactions would promote investment in forestry.