EXCESS PROFITS

Evening Star, Issue 23698, 4 October 1940, Page 9

EXCESS PROFITS

BILL RECEIVES FIRST READING STATE WOULD TAKE 60 PER CENT. METHOD OF ASSESSMENT EXPLAINED [From Our Parliamentary llerouteu.] WELLINGTON, October 3. The existence of a three-page memorandum explaining the Excess Profits Hill, introduced in the House to-day, caused the Minister of Finance to curtail answers to many questions regarding the measure from the Opposition tenches, members showing keen interest in tho legislation. They were assured by the Prime Minister that the second reading would not be taken until Tuesday, so that there would be ample time for study of the provisions and for the making of 'representations from those concerned. After briefly explaining the alternative methods of ascertaining the standi ~d income and assessment of excess profit, the Minister stated that tho latter sum would be divided, after national security, social security, and the 15 per cent, war and income tax had been deducted, the divisions being in the proportions of 40-60. Mr Forbes: Who gets the 40 ? The Minister: The State gets tho 60. Mr Poison: Has the Minister taken Into account the point I raised regarding farmers? The Minister: Yes, all classes arc safeguarded. The first assessment, he continued, was for the year commencing .April 1, 1940. The current year and its income did not become assessable for tax until April, 1941.. Under the normal procedure for payment, no tax would bo paid until February, 1941. The Leader of tho Opposition (Mr Hamilton):, Is this similar to the English Act? ” “ Oh, no,” replied Mr Nash, “ that 'Act is of 60 pages, and they add a page at every sitting.” Regarding the committee which would bear appeals, the Minister stated that it would probably consist of three members, one with a judicial mind, and the others having knowledge of the in.trieacies of industry. ' Mr Forbes: Have you tried to estimate what you will get? The Minister: Well, I hope we will get nothing. I hope we will get no revenue, because that will mean that no one is trying to profit by the war. That is the purpose of the Bill. Mr Hoidge: Are the farmers involved if they produce more ? The Minister: They will get paid for their personal exertions. None of the lower income farmers come in, because everybody getting £SOO or less is exempt. Mr Holland raised the question what happened to a company which took over another one. Would its increased profits be regarded as excess? The Minister replied that alterations in capital would be taken into account. The assessment would be based on the actual capital employed, not the subscribed capital. Mr Kidd: Tho prices paid to the farmers are fixed. If farmers are going to produce more to throw their weight behind increased production, working longer hours and spending additional capital, will they bo charged excess profits ? “ No,” replied Mr Nash, “the commissioner can determine the allowance for personal exertion.” Mr Kidd remarked that he knew one farmer who barely made_ ends meet last year and now showed an income of £l5O. How would he get on ? _ The Minister: He would he miles outside, because he must get £SOO before the legislation applies. PROVISIONS OF THE MEASURE METHODS OF CfIMPUTATIOH [Per United Press Association.] WELLINGTON October 3. The rate of the tax, which does not apply to salary or wages, is to be 60 per cent, of the_ excess profits left after income tax, social security charge,_ and national security tax have been paid. An explanatory memorandum circulated with the (Bill states that the proposals involve the ascertainment by the Commissioner of Taxes of the amount which constitutes excess profits and the issue of an assessment accordingly. Objections based solely on the ground that tho commissioner’s assessment is not in accordance with the statutory provisions binding on him are to be determined under ordinary income tax procedure, but objections on the ground that what appears to he excess profit is not so, or is not wholly excess profit,_ are to be dealt with by a special committee constituted for that purpose. The commissioner is bound to find that sums in excess of a taxpayer’s standard income are excess profits. The standard income of the individual taxpayer is to be whichever of the following three sums he may select:—(a) A sum of £500; (b) a sum (called normal income) equal to the greatest amount of assessable income derived by the taxpayer during any one of the three income years ended respectively on March 31, 1937, 1938, and 1939, or to the average of assessable income for those three years, plus 30 per cent., whichever is less; (c) a sum equal to 8 per cent, of the value of the assets used in producing income plus allowance (not being less than £SOO or more than £1,000) for the personal exertion of the taxpayer. For the company taxpayer the I standard income is whichever of the following two sums the company selects: (a) A sum (called normal income) equal to the greatest amount of assessable income derived by the company during any one of three income years ended respectively on March 31, 1937, 1938, and 1939, or to the average of assessable income for those three years, plus 30 per cent, whichever is less; (b) a sum which, after paying from it income tax computed at the basic rate (the 1940 rate without the 15 per cent, war addition) represents 6 per cent, of the value of the assets used In the production of the assessable income.

Both with individuals and with companies the taxpayer is regarded as Inning selected for his standard normal income the basis (increased whore necessary to the £SOO minimum for individuals) unless he notifies the Commissioner of Taxes to the contrary when his return of income is made. Special asessments may be made where the standard income cannot be assessed by normal procedure. If thd commissioner’s finding is objected to, tho committee will have to fix excess profits at a sum equal to such part of the assessable income as in the opinion of the committee exceeds the amount which the taxpayer might reasonably expect to derive under peacetime conditions of trade and industry, having regard to tho nature of tho business or occupation, the special circumstances of the case, and all other relevant considerations. In ascertaining the residue of excess profits, the income tax payable on excess profits is taken as the amount by which the total income tax payable has been increased because excess profits wcr*‘ received. This means that income tax on excess profits is taken as the difference between income tax payable on the whole income and the amount of income tax that would have been payable if standard income only had been received. Where the value of the assets used in producing the income is material, in order to determine tho standard of income that value is taken as being the difference between the value at the end of the income year of the taxpayer’s assets and his liabilities. Assets and liabilities are to bo determined by the Commissioner of Taxes. The provisions relating to standard income and valuation of assets govern only the making of the commissioner’s original computation of the amount of excess profits. The Excess Profits Committee is not bound by these provisions, and if objection to the commissioner’s assessment is lodged the committee may, after taking all relevant circumstances into account, fix the amount of excess profits. Tho committee, which is to consist of three persons appointed by the Gover-nor-General, is to have tho powers of a commission of inquiry, and tho proceedings are to be largely informal. * Provision is made for tho reduction of excess profits for any income year by the amount by which income for any of the three former years fell short of the standard income for that former j - ear. Losses incurred in former years in respect to which the taxpayer would be entitled to an allowance in the computation of his taxable income for income tax purposes are to be deducted from assessable income before the amount of excess profits is computed. Where the commissioner makes an assessment of excess profits tax the assessments of income tax, social security charge, and national security tax are to be made in the usual way. These assessments will not he varied by any later alteration in the amount of excess profits by the committee. The only amendment subsequent to the original assessment, except in cases where the total income is found to have been incorrectly stated, will bo any necessary adjustment to the assessment of the excess profits tax, which _ will be payable at the same time as income tax. Incomes which are to be exempt . from the excess profits tax are as follows:—(a) Income from royalties received from a qrant of rights to cut standino timber or to remove gravel or other minerals; (b) proprietary income derived by shareholders from proprietary companies, as the excess profit derived by the company itself is liable for this tax in the hands of the company; (c) salaries and wages, except in cases where excessive salaries are paid by proprietary companies to_ directors or shareholders or to their relatives; (d) the income of gold and petroleum mining companies. Tho Bill was read a first time.