NEW TAXATION

Dominion, Volume 13, Issue 298, 10 September 1920, Page 7

NEW TAXATION

WIDESPREAD DISSATISFACTION

BIG COMPANIES HIT

UNWELCOME SURPRISE TO TRADERS

So far tho real effect) of the Government's new taxation proposals is not sufficiently well known or digested for considered opinions to be formed as to their effect. Several people whoso opinions would be valuable were consulted yesterday by a. Dominion reporter, but in nio3t cases they had not had _ time to consider tho now Bill in all its _ bearings. From a consensus of tho opinions which had been formed generally; from the newspaper reports, however, it wns not difficult to fcrni the view that tho I proposals of the Government had como as a great surprise, if not a shock, to people interested in financial, mercantile, and industrial concerns cf greater or less magnitude, and will make boards ot directors throughout the country scratch their heads "to know exactly where tlicy are, whilst individual shareholders will be equally concerned to ascertain exactly how they are to be affected by the State s taxation proposals as outlined in tho new measure. "BETWEEN THE UPPER AND NETHER MILLSTONES." Mr. Harold Beauchamp, chairman of directors of tho Bank of Now Zealand, ' «aid when approached that it.was pe - iiaps a little too early to espm considered opinion on all phases JL.„ posed new Taxation Bill. There wero points which wero at once obvious, in the first place, they all had to recogmso that in order to meet the obligations another fourteen or fifteen millions over pre-war revenue had to be fc.und. He had to confess that the manner in which it was proposed to obtain a considerable share from tho mercantile community liad como as a somewhat unwelcome surprise. in the case of those companies in trade 'in a large way, the proposed additional tax would amount to 17* per cent.; in other words, instead. of tlio maxinuiro. amount of tax under the old 7s. Gd. in the £, it would be Bs. 9d. in the £. which would moan a great deal to many companies. Further taxation, too, was provided ok the land held by traders and manufacturers. The hold-, injr of such,land helped to bring such concorns within the scope of the maximum taxation. He had on one occasion had a chat with a foimeT Minister of Finance on thjs very point, and found it vas never intended by him that largo trading or industrial concerns should he penalised to such an extent, though the difficulty in differentiating between classes was admitted. In addition to the continuation of the war scale of taxation ,and the new land taxes, a heavy charge was being made on companies through the increased Post and Telegraph rates. 1 ■ He knew of one largo financial institution which was mulcted in JSOOO a year under that head alone. This was a charge that companies would find difficult to pass on to the public. Further, traders were being hit with increased wharfage, cartage, wages, and salaries on top of the -increases in the taxation proposals. It appeared, to him that the traders would find themselves between the upper and nether millstones, for in some instances the added burdens were not thoso they could convenientlv pass on without talcing the chances of bain? haled before the Court for profit-

"I can scarcely see how_ the Minister of I'inanoe is going to raise the money he needs if he is going to limit the powers of traders," said Mr. Beauchamp. "It is a pity some scheme was not devised to meet the case of the companies ■with a large capital whereby they might be relieved' of paying ' the maximum amount of income tax. for the proposals are going to be hard on the shareholders in 'such' concerns. The tendency must.be, if the proposals go through in their present form, for investors to put their money intp concerns with a small amount of paid-up capital—to spread their investments over a number of such companies and 60 avoid the heavy impost proposed. The man who had XlfiflO in each of ten companies, with a paid-up capital of 410,000 each, would find himself better off than if he had his .£IO,OOO in one .£IOO,OOO company, as tbo latter would bo subject to the maximum tax of Bs. 9d. in the pound, which impost the smaller companies escape. I fancy that the Government lost a splendid op portunity of raising money in the early stages of the war by not adopting my idea of a new import and export tax. In view of the extremely high prices realised for our primary products, the amount so raised . would never have been felt by the farming community, whilst the mercantile community wouid not have suffered materially in shpuldering its fair share of the burden."

A BACHELOR TAX. Seeking an opinion on the concession which has been granted the family man in respect to the increased exemption for all children under 18 years of age, one could meet few who did not think the Government had acted tardily in the matter. One citizen was most emphatic in his notion that the "Government had "missed the 'bus" in not taxing the bachelor without dependants: The iamily mail pays, pays, pays all the time for himself, his wife and children at every rise in the cost of living. How is ,the single man faring? He may have to pay another ss. a week extra for' board, and now and again invest in a new 6uit or pair of boots, but his increases in wages more than cover that. Single men on the wharves are said to be earning i£B a week. It would be interesting to know how much in tho way of income tax is derived from that source—and who has to make up tho deficiency? There are hundreds of single men betweon 25 and W years of a»e, who are ncglecting the- first duty of man, and thereby aro not only failing to make this country safer by contributing to its population, but at the same time they are dodging the taxation <4iat a family man, willy-nilly, has to face." One ol> vious remedy is a bachelor tax.

AN INTERESTING POINT. The new Bill involves many vital issues. One is the proposal to tax the interest derivable from, debentures. It is, also claimed in somo quarters that clause 23 involves taxation of income derivablo fiom tax-free war loan 1 stock. On this point we have received the following Sommunicatkm from a l'ocal business man-.— "One clause in tho Land nnd Income Tax Amendment Bill particularly calls for condemnation, viz., section 23. The previous section provides for tho inclusion in the total income of a taxpayer tf interest derived from debentures, for the purpose of fixing tho graduated scale applicable to his taxable income. Section 23 then makes similar provision applying in tho ease of War Loan interest, despite the fact that the War Loans wero raised 'frco of income tax." The operative words of section 23 of the Bill are as follow:—

"The last preceding section shall, with the necessary modifications, apply with respect to debentures issued by the Minister of Finance on behalf of tho Government of New Zealand." Let us tako a- concrete case: (a) Assessable income (exclusive of. ■ War Loan Debenture interest), ,£3300; late of tax, basis Tato Is. on each <C, plus 3100-100 eq. 2s. 7d.; total rate, 3s. 7d.; tax payable, ,£1)27 la. Bd. (b) Assessable income (inclusive of .G9OO intelfcst on. d£20,000 War Loan), rate of tax, basis rate Is. on each .£, plus 4000-100 eq. 3s. -Id.; total rate is. 4d.; taxable income =£3500 at •la. 4d. rate, tax payable .£738 Cs. 8(1.; "excess attributable to Debentures," .£l3l ss. Other instances could bo cited, but tho one is sufficient to oxposo tho injustice of the section. "The receipt of ,£9OO in war loan _ in. terest costs tho taxpayer an additional sura, in income tax, of .£l3l .Is., or 2s. lid. in the £. What is therefore his return from war loan—is it per cent, free of tax? Certainly not! It is 4k per cont. less 2s. lid. in tho .C (as aliove), equivalent to only 16s. lid. per cont. This constitutes a gross breach of (lie solemn obligations and promises of the Government of tho Dominion, j viz., that the war loans raised should ' boar interest free of income tax. Most

of the subscriptions to war loans were made in a laudable spirit of patriotism, a few by reason of the fact that compulsion would be enforced if subscription were not made. In hundreds of cases other remunerative assets had to bo sold or hypothecated to 'enable subscription to be made, and now the Government of the day proposes to make the return (in the case cited) a paltry M 16s. lid. por cent."

The Prime Minister told a Dominion reporter last night that clause 23 of the Bill had not been intended to affect in any way the freo-of-income'tax provision of war loan debentures. .The point had been raised when the Bill was before Cabinet and ho had been assured that the clause would not have the effect that was now being attributed to it. It would be noticed that the new section contained a reference to "necessary modification?." He had no doubt at all that investors had been fully safeguarded. The Government had not the least intention of going back upon any contract that it had mad». Anoilher aspect of the proposed tax on ileberituro interest is touched on by a correspondent. It ifi proposed-to tax holders of harbour board, municipal and Government debentures at the rate <yf Ss. in the £ income tax. This flat ratio is to be oharged, apparently regardless of the amount of the income of the individual owning the debentures. Tha idea-presumably influencing this decision was that only wealthy people or corporations bought debentures. This, of course, to-day is quite erroneous. Why should the small nolders of debentures be thus penalised? Surely the Government and Parliament will not permit this injustice but will so amend tho Act as to except the smaller men whose iincomeg from debentures are only, three or four hundred pounds a year. * There is also She question of whether the Government are acting wisely in their taxation of Government loan debentures in view of thoir future loan-raising commitments. OFFICIAL EXPLANATION DESIRED, Assistance for the ordinary member to understand the exact pr6posals embodied in tho Land and Incomo Tax Bill introduced on Tuesday evening was asked in the House of Representatives yesterday afternoon by tho Leador of tho Opposition. The measure, said Mr. Wilford, was ft complex one, and diffioult to understand. He had had only a shonl timo to consider it with the assistance of tho other Acta on tho Statute Book. In view of the rush of work with which members were faced he asked the Prime Minister to have some of tho officials of the Treasury prepare an explanatory note on the Bill showing the differences between tho new proposals and the procent law 60 that all members might know whaj changes were contemplated. He was satisfied that they all wished to understand the Bill, and it was of such importance that all should understand it, Mr. Massey said that lihe matter was one for the officials of tho Land and Income Tax Department rather than of tho Treasury. He would be very pleased to pass tho suggestion on. He did not thtfnk it was possible _?,<> got a memorandum beforo tho Bill reached committee, but ho would do his best to seo that somo memorandum was available so that members might have it when the Bill was in ife committee stages. Mr. M. Carr, president of the Wellington Chamber of Commerce, will make a statement respecting the new Government taxation proposals at a meeting of the chamber to bo held on Monday afternoon next.