The Dominion. THURSDAY, JUNE 22, 1916. THE TAXING OF WAR PROFITS

Dominion, Volume 9, Issue 2803, 22 June 1916, Page 4

The Dominion. THURSDAY, JUNE 22, 1916. THE TAXING OF WAR PROFITS

It is satisfactory to note that the, failure of members of the, House of Representatives to take advantago of the opportunity to discuss tho Budget in the customary way is not to be permitted to deprive the Government'and the country of the advantage of learning members' opinions on the more important matters involved in the Finance Minister's striking proposals. Last evening Mr. Peakce moved _ an amendment to the motion to go" into Committee of Supply which will afford members the chanec to _ air their views and offer suggestions which Ministers may perhaps find useful. While practically everyone is thoroughly in accord with the Government's. proposal to tax war profits, and while there is a common agreement that such profits should be taxed heavily, there is an increasing volume of evidence that the rough and ready method of assessment' proposed is likely to' occasion widespread injustice unless proper safeguards arc provided. It is perhaps unfortunate that the Finance Minister did not oxplaih his war taxation proposal in greater detail. As it is, all that the public know is that the proposed method of determining war profits is to take the average of the profits of tho three years proceeding the war and treat any amount in excess thereof as war profits. We have in previous articles pointed out how this may do serious injustice in individual cases where war profits have already been voluntarily donated for patriotic purposes, and also in the case of new businesses where little, if any, return on the capital invested has been obtained in the first year or two's operations, while the profits since the war have been only normal, and due to the ordinary growth and development of the bin'.iness. Such profits might not return the investors 5 per cent, on their outlay, and yet would be taxed as war profits and 45 per cent, taken by the State. The principle of the taxation of war profits could not in justice be ma'de to apply to such cases—the Government, wo have, no doubt, never intended anything of the kind, and tho public, while they have no sympathy with those who have been making money out of tho war, would not approve of penalising so unfairly any company or individual whose profits did not represent more than a bare interest on the money invested. Here, for instance, is a specific case. A man, four years ago, invested £8000 in a certain venture, and borrowed another £8000 at G per cent, to develop it. Ho did not expect to get anything out of his investment for the first year or two, rely ing on the future to bring him a reasonable return. For tho year ending 1912-13 there was a loss on working of £19; for 1913-14 a credit balance of £213 was shown; for 1914-15, the first year of the war, there was a credit balance of £032; and for tho current year the estimated working profit is £700 to £750. The average of his profit for the two years preceding the war on a capital of £8000 was £97; and under the Government's proposed method of assessing war profits this—less than 1$ per cent.—would be treated as a fair return on the money invested, aud tho whole of the profits to-day above

that amount' treated as'war profits. This, of course, would bo absurd and most unjust, and quite contrary to the spirit and intention of the Government's proposals. Yet, unless proper safeguards aro provided, there will bp many cases of this naturo in which grave injustice will be done and cruel hardship inflicted. Mr. Pearce, in the House of Representatives last evening, drew attention to another difficulty which must ariso in the assessment of the war profits of farmers. Until compelled to do so by the Act of last session, many farmers have not been 'in_ the habit of keeping any. systematic record. of their yearly profits, and it will be impossible'for them to give anything more than a very rough estimate of their average profits for the three years preceding tho war. Unless the Government is prepared to accept a general statement of this nature, it will be setting the farmers a well-nigh impossible -task to present accounts showtheir profits over the years preceding the war. It will be noted that the Industrial- Corporation of New Zealand, while expressing general approval of the Budget proposals, has made certain suggestions to the Finance Minister regarding tho tax on war profits which deserve consideration. The first of these is that instead of the averago for threo years being taken to ascertain tho normal rate of profit, tho average of five _ years _ should bo taken. This, while it might be convenient_enough for the ordinary bvNuness house, would increase the difficulty mentioned abovo ' which will confront the farmer who in the past has not kept books showing his profit and loss. Another proposal of the Industrial. Corporation is that before profits are assessed for the 45 per cent, wai* tax, allowance should be made for interest at 5 per cent, on the capital invested. This presumably means that in no case would tho profits of a firm or individual be treated as war profits unless theyexceeded 5 per cent, on tho capital invested, which surely is reasonable enough. The third suggestion _is that donations given to patriotic funds should bo deducted from profits and not from capital, and should be not assessed for the purposes of taxation. Very few people will take exception to this. As before stated, the Government has not yet disclosed anything more of its proposal to tax war profits than the method of assessment and tho. percentage to be taken. It may have 'in mind provisions which will safeguard ajjainst injustice being done, and which will meet many of the objections now being raised. Until the full details of tho Government's scheme are made known, however, suggestions such as those put forward by the Industrial Corporation should be welcomed. They .may, in some instances, prove superfluous, but anything of -a practical nature likely to assist to plaoe this new tax on a sound and equitable basis should prove helpful to Ministers. and contribute to the Bmooth working of what all must recognise 'to be a sweeping but warranted war measure. •