TAXATION PROBLEMS

Dominion, Volume 10, Issue 3150, 31 July 1917, Page 6

TAXATION PROBLEMS

AN INTERESTING SURVEY PAPER READ BEFORE CHAMBER OF COMMERCE About twenty members of tho 'Wellington Chamber of Commerco attended a general meeting last night in order to discuss the matter of incomo tax. Tho president (Mr. F. W. Manton) was in the chair. Tho chief business of the evening was the reading of a paper prepared by tho secretary of tho chamber (Mr. H. D. Vickery). „ Tho chairman said that tho paper to be read that evening would bo of value to members, and it might have soino influence on tho proposals of tho Government. Taxation was a very serious matter for those who had to discuss it. and the commercial community could not give it too much attention. The Income Tax. . Mr. Vickery traced the development of tho income tax as a means of providing money for national purposes. At tho present time, ho said, the tax was payable on all incomes, with certain exemptions, in excess of The tax ranged from 6d. to Is. id. in the pound; and in tho case of registered companies (which did not get the benefit of tho exemption) from Is. to Is. ill. These rates had been increased by 33 1-3 per cent, during the war. The Finance Act of last year imposed a further tax of 6d. in tho pound on incomes up to X'9oO, and Is. in the pound on incomes above .£9OO. There was also the excess profits tax of 45 per cent. Tho Tecent big increases to the burden placed upon the taxpayers was shown by the revenue figures issued by the Government:— ' land Tax. Income Tax. £ ' £ J9U 767,151 554,271 1915 709,1)41 510,318 I'JIB 1,045,0a1i 1,392,110 He thought that the collection of the income tax iwas reasonably thorough. The officials had elaborated their system with experience to guide them, and prior to 1915, at any rate, few people had escaped taxation that they should pay. it was universally agreed that taxation during tho war period must bo heavy, consequently any inequalities which might ha-vo been condoned in tho past in regard to income taxation wero now aggravated. No tax which could be suggested was free from objection, but every commercial man present realised that there was a great difference between his "assessed" income under tho Land and Income Tax-Acts, aoid his cunmcrcial "net" profit. This was accounted for in many ways, principally by nondeductions for donations, land and income tax payments, and, particularly in the case of industrial concerns, by the inadequate amount which was allowed by the Department for depreciation. Excess Profits Tax. Mr. Vickery referred to the necessity for special taxation ill war time, but said that serious inequalities had arisen under the excess prolits tax imposed in New Zealand as a war measure. Ho dealt with this point ia some detail. The farming community had rounuiy condemned the excess profits lax. He believed tho real objection was. tho existence of a feeling of uncertainty us to tho amount of taxation which each producer should pay. No factor was more likely to prompt a community to condemn a tax than a feeling that there was an element of uncertainty either in the amount to be assessed for taxation or in the amount of the tax to bo naid. It was undeniablo that the farming community had made "war" profits clue to tho high prices ruling for products of the farm. Tho problem before, the Government was how to arrive at the amount of profits mado; or, in-view of tho difficulty in doing this, to determine what form tho "war" taxation should take, so that tho farmer would pay his fair proportion of taxation at this timo. Canada had adopted a business profits war tax. Prior to 1916 Canada had no system of income taxation. Tho system now was to collect as tax onefourth of the net profits arising from any trade or business since the outbreak of war, in excess of 7 per cont. on the capital employed in the case of companies, and 10 per cont. in the caso of other persons. The business of "farming and. stock-raising" was excluded from the operation of the Canadian Act. This I system had the merit of being simple, I and treated old-established and new ! businesses alike, and it was an open question whether such a system (with tho modification that the percentage on capital vary with tho risk involved) would not be moro equitable than tho New Zealand method. War Profits. Mr. Vickery surveyed the possibilities of an export tax as a means of collecting sonio portion of war profit. Various bodies in condemning the excess profits tax had suggested that a fair way would be to impose a graduated income tax. The idea underlying graduated or progressive taxation was that a heavier burden was put upon the wealthy. It was based upon the theory that tho greater the incomo of tho taxpayer/ the greater tho sacrifice he could make. He would, however, point out that there were dangers in the graduated tax. Many industries in New Zealand would only be carried on after a very large capital expenditure had been made, and to tax such incomes on a graduated scale simply because they were large incomes would result in inflicting considerable injustice on the shareholders of such companies. Any tax which was likely to bo so onerous as to prevent a fair return on capital was surely against the interests of the community. If an extonsivo graduated system of income taxation was to bo introduced, then it should bo safeguarded by first allowing capital a fair return, and graduated tax should bo imposed only upon tho surplus over that fair return. A levy on wealth would be, in effect, a property tax, and authorities were agreed that this form of taxation was highly undesirable. It had the effect of sending large amounts of property into hiding, and driving capital from the Stato. Ho hoped that this offeto form of taxation would not bo introduced in New Zealand. The difficulty of reaching the many forms of personal property was a serious objection, whilo the tax fell on property irrespective of its earning capacity. One effect of such a levy would be to impose a penalty, on thrift. Allowance for Depreciation. After referring to double income tax and the steps taken by the Imperial and Dominion Governments to remedy this grievance, Mr. Vickery said that the allowance made by the Commissioner of Taxes for depreciation had for years been a cause of complaint. The allowance was at tho rate of 5 per cent, on tho decreasing value of nower-driyen plant and machinery. No- allowance was mado for fittings and plant not powerdriven and many other assets used in business which were subject to depreciation. It wns true that when machinery was discarded or became obsolete, "the Commissioner makes an allowance. The Commonwealth Department of Taxation has made allowances on a much higher and fairer scale, and there did not seem to l>o any reason why some more reasonable method of allowing depreciation should not be introduced in New Zealand. The. non-allowance of proper rates of depreciation line! been bad enough when rates of income tax were comparatively low, but with the present heavier taxation the position was serious. To the extent that proper depreciation was not allowed taxation was levied on receipts that were not profit , !. Such a system unfairly penalised industry. Wasting Assets. In conclusion, Mr. Vickery said he wished to draw attention to the very onerous treatment meted out to concerns working timber and coal areas. Companies working such products had a limited lifo, !tnd they must make sufficient nvofits during that period to enable them to renay the capital invested and interest. Many of these companies had to build railways, and brides l<> get access to tho areas to be worked, and this construction work was generally valueless when the areas being worked wero exhausted. It was obviously unjust that all tho profits of such concerns should be assessable for income tax, as DortioE of th? "profit" manifestly ropre- j

eented a return of capital. It was only just that such industries should bo allowed to deduct from their profits, l)c----fore such profits becamo assessable for income, tax, on annual sinking fund contribution sufliciciit to repines the capital expenditure during the. estimated life, of the urea to bo worked. The. position of such companies regarding taxation had become much worse since the excess profits tax was introduced. Thcro were not many dividend-paying companies working coal and timber areas in New Zealand. It was difficult to get capital for investment in such companies, partly due, no doubt, to labour troubles. The increased taxation would fall so heavily on these companies that it would act as a further deterrent to investors. The Papor Discussed. Tho chairman said that the Inst point mentioned by Mr. Vickery was highly important. Nex Zealand must offer inducements for the development of natural resources. Tho picsent state of affairs acted as a deterrent to investors, and the whole Dominion was interested in seeing , that tho drrmnnt wealth of' New Zealand was developed. ' Answering a question, Mr. Vickery said , that tho taxation on companies working wasting assets operated most unfairly. ■ He knew of one company which had "been called upon to pay ,£ISOO in income tax last year, when it was distributing only ,£4BOO in dividends. Mr. 11. Can , said lie was sorry the points raised had not been discussed earlier. The business people who paid taxation ought to make their voices heard wiien their interests were concerned. They were being taxed in many indirect way's through tho Post and Telegraph Department and the Stamps Department, in addition to the direct taxation. Tho excess profits tax had worked most unfairly in every way. The business peoplo land no guarantee now that the injustice was not going to bo repeated in another form. The chairman urged that it was timo the business people of New Zealnd woko up to their responsibilities. The small attendance at that night's meeting was not a hopeful indication. The Old Conn, try was preparing for post-war trade. New Zealand seemed to be •ioinp; nothing. Its commercial men seemed to bo making no effort at organisation. Mr. J. M'Lelkn said that an export tax on butter would have kept down the local price, and would have been more satisfactory to all concerned than the butter-fat' levy. Ho thought members of the Chamber should meet representatives of tl»o farmers with tlis object of discussing the whole position and advising the Government regarding taxation. After some further general discussion, the meeting accorded Mr. Vickery a very liearty vote of thanks for his valuable paper.