HASTY ACTION

Auckland Star, Volume LXXIII, Issue 119, 22 May 1942, Page 3

HASTY ACTION

TAX ADJUSTMENTS INEQUITABLE EFFECTS "This hasty and ill-considered legislation is yet another example of the w.iy in which far-reaching amend menu to the income tax law arc inti '"lut ed without members of Parliament or the general public being given su I Tic ion t time to appreciate their effects, said Dr. H A Cun nmgham to-day when asked to comment on the latest, adjustments in taction in New Zealand.

Mr. Cunningham said Mr. Fraser had minted out that dividends were still not taxed, but were merely brought, into account for fixing the rate. It seemed, he commented that the Government had always considei'ml that the burden of taxation could be made much lighter by the choice o| a suitable name. Thus the uncmplo\ nient tax was verv* much criticised by Labour while in opposition. The first step they took to relieve the burden on the taxpayer was to change the name to employment tax. Later still the tax attained complete respectability by a further change of name so mat it was now the social security charge, and the taxpayers had attained the status of contributors, notwithstanding that at the same time the amount collected was increased by 50 per cent.

Taxing Dividends

In the new bill, copies of which were not yet available, the draftsman in the opening clause relating to iion assessable income stated that the rale should be "as follows," continued Dr. Cunningham, but afte.that he talked no more about rate. Instead, he proceeded to provide for a tax to be computed on the total income, including dividends, and a deduction from this amount of the tax which would have been payable on the dividends if they had been the taxpayers' total taxable income. Still endeavouring to keep up the pretence, however it was stated that this tax, computed on non-assessable income, as well as on taxable income, was to be called the tax on the taxable income only. It looked like a tax on dividends, it was computed as a tax on dividends, the Act with reservations admitted that it was such, and it no doubt felt like a tax on dividends to the taxpayer. It might amount to as much as 12/ in the £ on the dividends received. Moreover, it was a dividend tax which was not of universal application.

Thus, said Dr. Cunningham, a person who received a large income wholly from dividends still paid no tax at all. If, however, he sold a block of shares in order to invest in the present war loan, his dividends would then become taxable, provided his interest from war loan exceeded his exemptions. Mr. Fraser had attempted to justify the tax by saying that the fact that a man had such non-assessable income obviously put him in a better position to pay the tax on his other income. If the lengthy definition of dividend was looked at it would be seen that it included some things which added nothing to the taxpayer's available income, that it was not necessary that the taxpayer should derive any real profit, and that he might even make a loss and still be witnin the definition.

Double Taxation on Dividends

Further, it appeared that the shareholders in proprietary companies were now in a somewhat better position than shareholders in other companies. The Government had stemmed the rush of taxpayers to Ret out of proprietary companies a year ago by introducing a series of amendments to the original section. Such shareholders still had proprietary income taken into their individual assessments, but they were entitled to deduct from their tax the tax paid by the company at the company's rate of tax. ... In the case of shareholders in other companies, however, they were now entitled to deduct from the tax on their dividends only the tax which they would have paid on the dividends if those had been their sole taxable income. Consequently, until the next turn of the wheel, proprietary shareholders had some advantage over other shareholders. Mr. Fraser had referred to this taxation as being in accordance with principle, but this rough and ready method of achieving equality by kicking alternately the different groups seemed to be the main attempt made to apply the principle of equality. The profit out of which these dividends were paid would already have paid tax in the hands of the companies at rates which might reach 18/6 in the £. The balance was now to be taxed again in the hands of the shareholder at rates which may reach 12/ in the t. Dr. Cunningham concluded by saying that if a business were carried on by an individual or by a partnership its income was subject to only one income tax, but if it were carried on by a company the earnings were now subject to two income taxes.