LETTERS TO THE EDITOR

Dominion, Volume 10, Issue 3181, 4 September 1917, Page 8

LETTERS TO THE EDITOR

TAXATION OF COMPANIES Sir,—l have read your loader of to-day, under the heading "Companies and the Finance Bill," with great interest, as it is a matter of grave importance at the present time, and anything that.cat be suggested that will desired object of raising the necessary money witli a minimum of inequity deserves careful consideration. With much that you wrote I am ill entire accord. The wholo system of income taxation is admittedly on a wrong basis, tho treating of companies as an ordinary individual without consideration of the capital involved leading to inequities which cannot he avoided so long as this basis is continued. ItNeems to me to be certain that this basis will have to bo altered, and ihdivdual incomes taxed. As a matter of fact the Government evidently has this in its mind, because last year's returns called for the data that would enable the Income Tax Department to ascertain tho total incomes of individuals. Apparently, however, the Department was unable in the time at its disposal to make use of this information, and as the money had to be found tho Finance Minister had perforce to frame his proposals on tho data at his disposal. This point you apparently agree with.

If, then, it is agreed that the basis cannot be changed this year, it 'becomes a question of the best and fairest method of taxing a company's income. The Finance Minister proposes the graduated scale as applied to individuals, while yon advocate a flat rate for all companies, and -your proposal has the support of some chambers of commerce. I wonder, however, if you or they have looked into the figures to see what this proposal actually means. Tf you take the last figures available (published in the 1915 Year Book), and group them, you will. find that there icero:— £ 908 oomnanie's with ■, incomes no to £1000. their total income? being 277,205 470 companies with incomes from £1000 to £5000, their total incomes being I,(KS I 4GO 212 companies with incomes over £5000, their total incomes being 4.140,696 __i : 5,456.301 Under the present taxation proposals tie , £ ' 908 companies would pay about Is. 9d. in the £ eauals 24,255 470 companies would pay about 3s. 9d. in the £ ......... ccraals 200,325 212 companies woufld pay about 7s. 6(1. in the £ equals 1,552 761 1.777.341 That is to say, that the total income of companies .of .£!>,4S6,Bol.would pay.in taxation ■ Now, -if your suggested flat rate were adopted, it would mean that, to raise the same amount, every company, large or small, prosperous or struggling, would pay just on Bs'. Gd. in the pound. In bther words, you would penalise 1378 small or struggling companies to an amount varying from ss. 9d. in the pound downwards to save 212 large or prosperous companies Is. in the pound. Moreover, the small companies are usually managed by the shareholders, and their income is therefore, in most cases "earn-' eel" income./while the larger companies' profits, are for the bulk of the shareholders "unearned" incomes, and, while not wishing to debate* the,. Tights or wrongs of differentiation 'between "earned" f.nd "unearned" incomes, still it is a point perhaps worthy of consideration in this instance.

It seems to me on the foregoins fipures that the ineqnity is goinsj to lie more pronounced on a fiat rate than under the Finance Minister's proposals, !ariti<» an unduly heavy burden on the small or struggling companies, while not giving anv appreciable relief to the companies with the big incomes. Furthermore, I would lite to emphasise one point that I have not yet seen mentioned, and that is_ that large companies have some considerations to set oT against their admitted hardships. There are qnite a number of companies who i have a »r<icti»M!y assured income of at least Now if such companies by extra energy or opportunity make additional profits of. say. in l.he year, then out of this .f.SOOO the Government zets.by way of tax .E1125. arid th° company retains the balance of iGIfJS. Now talce the case of a cnmpnnv with a smaller income, snv. Tf by energy it makes an actional AWOA profit, 'then from this .SPO the Clovernment pels by way of-extra- tax .£18? : t I.ls. 9d„ a»d the oompanv Tetairis the balance of .€1175 6s. 3d.t Summed u". iihnt mi?l't l>o tended' "»xtrn enerqv" is in the ease of tho big company at 37* ner cent., and in the case of the smaller company over CO per cent. I think you will find on further examination- that the proposals of* the Finance Minister (whether accidentally or purposely) work out as equitably all round as can be devised, always remembering the fact that he has to work from a foundation 1 tlmfe is wrong in principle, and anv proposals to amend the Finance Bill will have to be most closely scrutinised or chaos will'Tesult. * I think that the chambers of commerce and others interested would be_ well ad-' vised to concentrate on agitating to alter the incidence of the incoma tax as already outlined. This is tho more essential because if the war goes on! and taxation becomes heavier it will doubtless be necessary to continue the graduated tax beyond;" the present limit of 7s. Gd. in tho pound, and .naturally the higher the taxation the more imperative it becomes to have ' the correct basis, viz., individual incomes.—l am, etc., A. surai. September 3.