THE TAXATION OF WAR PROFITS.

Dominion, Volume 9, Issue 2807, 27 June 1916, Page 6

THE TAXATION OF WAR PROFITS.

Sir,—After- reading .with interest your able leader of June 19, more especially that portion dealing with the method of calculating war profits for the purpose of deducting the -15 per cent, war tax, I am venturing to put the following case beforo you with a. view to learning .your valued opinion. Six years ago a man purchased a grocery business in one of the cities. After three years' trading, during which he made bare wages without allowing interest on his capital, he sold out, and -bought a general store in a country town. In this business he sold drapery, ironmongery, boots, etc., as well as grocery, and; the stock being twice sis large, it. absorbed more of his capita] than did the city shop. The first year in tho new business was good. The second,- which included the iirst seven months of the war, was poor, probably owing to trade being considerably upset. However, the next year, which ended March 31, 1016, was very good indeed, mainly because the business had become firmly established. Trade had increased 20 per cent., and, owing to shortage of labour, ho had to w.ork longer hours himself, and thus involuntarily saved a man's wages.

Now, Sir, if the tax is to be taken from the profits of the last year, oased on an average of the three previous years, it will bo most unjust to this man, inasmuch as tho first year was in a different business, where conditions w.ere nothing like the same, and tho other two years were employed in getting a 'footing in the new locality, and added to this the fact that increase of»profit the last year was mainly due to increase of trado and wages saved, neither of which items seem to constitute war profits. Do you not think that a fairer wav to gauge tho war profits as far as retail businesses aro concerned, would be to take the percentage of gross profit on turnover as against that of the pre-war years, and deduct from the net profit accordingly? But probably yon will be able to explain why audi, a course is not adopted. I would also like to know how businesses are to be taxed that have started since the w.ar. Thanking you in advance, and apologising for trespassing on your time and space,—l am, etc., INTERESTED. [Our correspondent's letter ■ supplies further illustrations of. the difficulties and the possibilities of injustice associated with- a Jurrd and fast method of assessing war profits. Until the Bill dealing with the matter in detail comes down it is impossible to answer the ques'tions raised, but it inay interest our correspondent and others to learn that the proposal for assessing war profits as out- ' lined in the Budgot is to bo materially modified. It will probably be found that when the measure is introduced allowance -will be made for a reasonable interest on capital invested in a business before the earnings are treated as war profits. Wo hope also to see provision made for appeal to an Assessment Court, wjuch will havo power to deal with the question of assessing war profits from the point of view of" equity.]