TAXATION ANOMALIES

Hokitika Guardian, 1 April 1922, Page 1

TAXATION ANOMALIES

gir —With a general election approaching the time seems opportune for reminding members of Parliament and their constituents of some of the anomalies in the taxation syßtem of the Dominion which ought to be removed without any appeal to the contentious side of politics. The greatest of these anomalies occurs in the application of the income tax to companies. The nature of this incongruity is tolerably well known, but its effect is not so generally understood. The tax is graduated in proportion to the incomes of the several companies, the maximum rate of 8s 9d 3-sths.. in the pound being reached when the income amounts to £IO,OOO a- year. Practically all the large companies are paying the maximum rate, which in many instances is substantially increased b v the methods of assessment and the disallowance of reasonable deductions. Probably the tax would work out in the majority of cases to close upon 10s in the pound. In the case of an individual enjoying an income of £IO,OOO a year this high rate of taxation would entail little hardship and no injustice. It would he merely in keeping with the principle of equality of sacrifice. which every sound system of taxation prescribes. The necessities of the country being great, the contribution of wealth must he large. But the company consisting of n number of shareholders. with interests of varying degree, stands in quite a different position. Its capital of say £IOO,OOO may have been subscribed hy 200 people in holdings of from £IOO to £2,500. A profit of 10 per cent upon this capital Would; represent a sum of £IO,OOO and not one of the 200 shareholders might be in receint of an income sufficient, including his dividend from the company to bring him under the operation of the ordinary income tax. But whether he was or no, if a holder of £IOO worth of shares his £lO profit would he reduced, in round figures, to £.q bv the tax which tV company would pay, and if a holder of £2,500 worth of shares his £250 profit would he similarly reduced to £125. This would mean the reduction of his income to one half of what it would have been had be invested his money outside the company. Of course all shareholders in companies, little and big, are affected by this anomaly, the little shareholder, otherwise not taxable, coming under the maximum rate for every round of his share of the earnings and this being, in proportion, the greatest sufferer. The "Prime Miniser has admitted the .injustice of this discrimination against company shareholders, but his finan cial advisers persist in looking at the question from the point of view of expediency rather than from that of equity. They plead that the company tax is easy to collect, that its adjustment to the incomes of the various share holders would entail much additional expenditure and that the smaller return would necessitate largely increasing the tax on incomes bptwpen £409 and £4.000. Tn Great "Britain, Canada, and Australia, however, the respective Governments do not select companies and their shareholders for penal taxation in the interests of expediency. The companies in those companies in those countries not being crippled by exorbitant exactions c an give a more eoonmical service to the general public and the shareholders paying taxation according to their own means are encouraged in habits of thrift and enterprise to the benefit of the whole community.

This heiug so there can be no adequate excuse for the perpetuation of a gross injustice in New Zealand. It should not he a question of trouble, nor even of expense, and certainly not one of what is going to happen to people drawing incomes of from £4OO to £4,000 a year. It should be a question Rolely of justice. People drawing good incomes from other sources should not be allowed to lean on people drawing good or poor incomes from companies. There should be absolue equality of sacrifice in matters of this kind, not merely for the benefit of the individual, but even more for the self-respect, good name and welfare of the community Notwithstanding my effort to confine myself to the barest outline of this important question, I have run into greater length than I intended and in consideration for your space will defer what. I set out to say concerning other anomalies of taxation till another occasion.—l am etc.. EQUITY.