UNJUST TAXATION.

Dominion, Volume 6, Issue 1849, 8 September 1913, Page 6

UNJUST TAXATION.

e 1 It is a curious thing that no adequate protest has been made in New Zealand against the system of taxing the incomes of companies. A circular letter which has reached ua from ,the Employers' Association makes referenco to the question in connection- with the proposed increase in the Graduated Income Tax and its effect on companies; but tho protest which tho Association makes relates to the principle of taxing. income instead of taxing distributed, profits, and does not gt> the full length of objecting to taxation, on the basis of the total combined profits of shareholders as distinguished from the profit to each individual shareholder., The attitude of_ the Employers' Association is designed to remedy one injustice _ to shareholders' of companies, whilo it leaveß another untouched. A company is nothing 1 more th-n a combination of individuals who have each contributed a proportion of the money necessary to provide the working capital of the business which the company is created to undertake. It is these individual shareholders who receive tho profits or bear tho losses of tho company's efforts. The State, however, in its wisdom, has decided for taxing purposes to treat individuals who are shareholders of companies not as individuals, but as combinations, with the result that a person who puts his money into a company which makes profits is in most cases taxed at a far higher rate than he would be on the actual income he receives as an individual. Let Us suppose, for instanoe, that* 200 persons each hold an equal number of shares in a company with a capital of £100,000. The company shows a profit for the year of £7500. It is now taxed at the rate of Is. 2d. in the £ on that profit. That is to say, the shareholders have to pay some £430 odd by way of taxation. But the amount the shareholders actually receive out of the profits is probably only £5000, or 5 per cent, on the capital they have put into the business, and assuming that each of\ the 200 received an equal share of the £5000 it would mean £25 each. Now, the point is this: Why should these individual shareholders each be taxed at the highest possible rate under the law as though each had an income of £50001 On an income of £25 each they are taxed at the same rate as men with incomes 200 times as large; whereas in a great many cases if treated as individuals, instead of being dealt with as combinations, their incomes would be so small that they would not be liable to taxation at all. The principle which should be followed in imposing an income tax is to tax the individual on his income; and where there is a graduated inoomo tax with an increasing rate of 1 taxation in some proportion to tho ■ increased size of tho income it is still i the individual income of each per- ■ son liable to taxation that should be i taken into account. Why, then, is ;■ not this tho case where individuals ! have combined to provide the neces- : S ary capital to found businesses, and • develop undertakings of various kinds'! Is there any just reason - why those people who display the ' enterprise and risk their money in • commercial, industrial, and manu- • facturing undertakings should be I penalised? Such profits as may be : earned are drawn by the sharchold- : crs as individuals, each receiving his share, but the shareholders a_re_ taxed , as combinations, with the injustice i we have already mentioned of being ■ forced to pay a higher scale of tax- ; ation than they would pay as indivi- , duals. This, of course, is pleasant \ enough for the tax-collector, but it i is strange that proper protest has • not been made by the taxpayer, i Possibly the reason for this neglect • has been that the shareholders have ; not given any thought to the qucs- ■ tion. Now, however, that another i turn of the screw is about -to bo i given, it may be that thev will wake : up to the injustice that has been bo i long dotio tliflm, If tha fiolicy of

tho country wero one designed to discourage company enterprises, it would be possible to understand the method of taxation pursued; but no one outsido the ranks of Socialism would be foolish enough to advocate such a policy. Everyone who has thought abgut tho matter at all knows perfectly well that many enterprises which' have been developed to the advantage of the country would never have been ' established at all but for the formation 'of these companies. The capital required could not have been secured in any other . way. The Employers' Association, in its circular letter, states that "the imposition of a graduated tax upon manufacturing and trading companies is believed to be detrimental to the best interests of the Dominion, ns tending to prevent capital being engaged in industrial enterprises. Industrial enterprises particularly are viewed with distrust by those who have money to invest, and anything calculated to assist to r<kstablish confidence in this direction is a matter of very great moment to tho country. Parliament, in this connection, oould with advantage devote careful thought to the whole question of company taxation.