COMPANIES AND THE FINANCE BILL

Dominion, Volume 10, Issue 3180, 3 September 1917, Page 4

COMPANIES AND THE FINANCE BILL

In his very interesting speech on Friday evening the_ Minister op Finance did not seriously attempt to answer the criticisms and suggestions which have been advanced respecting those clauses of tho Finance Bill affecting tho shareholders of limited liability companies. Tho concession proposed to be mado to shareholders whose total income docs not exceed £300 will relieve a certain number of small investors, and, indeed, as was pointed out by a correspondent in these columns, it will in some instances result in giving such shareholders a larger dividend than they have been accustomed to receive. But the main point to be considered is tho fact that the method of taxing companies is inequitable. Tho progressive tax so far as it relates to companies and takes no account of tho amount of

capital and the number o£ shareholders involved is unsound and unjust in principle. It is manifestly absurd, for instance, to attempt to argue that a company with 300 shareholders, a capital of £100,000, ancl an income of £(iSOO a year, should pay a higher scale of taxation than a company with 150 shareholders, a capital of £50,000, and an income of £5000. In the first case the shareholders have an income of only Gj per ccnt. on their money, wheroas in tho second case they have an incomo of 10 per cent. The shareholders taxed on the lower scale are actually making larger profits than those texed on the. higher scalc. Tho following table will serve to make tho injustice clear:

TaxaCompany Total Profit Taxa- tiou capital profit, per tion. per £ £ cent. £, cent. 100,000 0500 6i 2353 3G ■ 50,000 5000 10 Hll 28 25,000 2500 10 377 15 20,000 2000 10 249 12 It will .bo seen from, these figures that no consideration whatever is given to the question of the actual incomes' of individual shareholders in companies or the return they receive on the money they liave invested. Shareholders in a company which earns only per cent, are taxed at tho rate of 36 per cent, on their income, while shareholders in companies which earn 10 per cent, are taxed in many instances at less than half that rate. In three" of the instances quoted, where oa-ch of the companies earnod 10 per cent, on the capital invested, tho rates of taxation varied from 12 to 28 per cent. There is no possible, justification for this inequitable scale of taxation. Tho only justification offered by Sib Joseph Ward 'was that he must have the money (£630,000 he mentioned as the amount ho expected from company taxation), and he apparently could see no other way of seouring it. Yet there is another way, simple enough and certainly more just, than the method proposed. A flat rate would place all companies on an equal footing, and tho amount could be fixed so as to ensure that the revenue needed would be obtained. There are more just methods than this—the taxation of tho individual shareholders on their individual incomes, for instance—but this probably would necessitate a complete, recasting of the whole of the Minister's proposals, and is porhaps out of the question. The substitution of a flat rate for the present proposals applying to companies would bo a simple matter, and would at any rate modify the existing injustice. On the question of the compulsory investment by public companies'in the War Loan, tho Minister of Finance has stated that it is not intended to press this provision harshly. This is _ satisfactory so far as it goes, but it is most desirable that some clearer idea of what is intended to be done should bo given. We have already pointed out how this compulsory clause may cripple companies already working on a narrow margin of capital. It should also bo borne in mind that it is liable to interfere with those companies which do business with farmers, using their capital to enable settlers in the bush, districts to ! clear and improve their farms and increase the production of tho country. If these companies are compelled to divert their capital to investment in the War Loan there may bo less money 'available for that development which is so necessary to tho prosperity and welfare of the Dominion. _ Possibly the Minister may see his way to make exemptions which would meet such cases. It is worthy of note that last week Sir Joseph Ward brought down certain new clauses to the Finance Bill authorising companies and' local bodies to invest money in War Loan securities. A correspondent whoso letter appears in on? columns this morning raises a very pertinent question on this . point. If it was not legal for companies to invest in tho 1016 War Loan, then surely it is a most improper thing to ponalise them now for not having done so. If the amendments to the law now proposed are necessary. then it would have been illegal for those companies to invest in the War Loan of 1916, and that being tho case, it is an extraordinary procedure to now threaten them with penalties for omitting to commit an illegal act. The posi tion of tho Minister op Finance, wo know, is a difficult one, and we have no desire to add to his difficulties. He must lhave revenue, and lie must have lean money, and it is tho duty of everyone -to assist him so far as lies within their power. Thiß does not mean that evory proposal which is brought forward should bo accepted without criticism or suggestion. If the Government's proposals are not equitable a sense of injustice will arise and a spirit of antagonism spring up which will make the task of Ministers still more difficult and militate against that unity of effort and purpose so necessary at the present time. It is the duty, therefore, of those in a position to judge the possible effects of the new and in some instances unusual financial proposals of the Government to point out possible sources of injury and injustice, and to endeavour to show a way m wmcn thev can be avoided without depriving tho Minister of Finance of the money he needs. It is equally the duty of the Government to met such suggestions m a rea, sonable spirit, and to profit by them whenever possible.