TAXATION AND ITS INCIDENCE.

Hokitika Guardian, 11 September 1924, Page 4

TAXATION AND ITS INCIDENCE.

rsIiITISII INCOME TAX. iTGI'EES AND ’FACT*. (Cjntiibuleti.) Towards :i ]>r<>]:<• r understanding of tlio 11101111 ilit; and .signilicance of tin* income tax in New Zealand it will ha helpful to know something of the history and operation of the iiuome tax in (treat Britain. By a vast majority of tile people of the Dominion (treat Ilritain is recognised as the ‘.Mother Country” front which they have derived not only their racial tracJilions and aspirations, hut also their political, commercial and social institutions. This is only natural. The great bulk of New Zealand’s trade is done with Britain, a la rue part of its <a;ital for hath public and private undertakings is obtained from the same .source, and the currency and the financial systems of the two countries are practically the same. This being the ctt.se it does not seem unlikely, having regard to their diiferent circumstnir es as well as to their intimate associations, that the Dominion may have something to learn in this matter of taxation from the experience and the- policy of the I’arenl ■Unto.

Tin: beginning. iso long ago as the lirtcenth century certain sources of income were taxed in England. hut rhitrary levies of that remote time have little healing upon the present situation in Xe>v Zealand. It was not until 171)3. during the reign of (leorge 111. that the younger Pitt, as great a linn rice Alinister as his father has heen a war Minister, devised the first income tax in (I rent Britain for the j iirpose of assisting ill the prosecuting i f the Napoleonic wars. This tax was regarded purely as a war measure ami ill IRIo. when Waterloo had made its iinitiiiuane’e unnecessary, it was repealed. If was imt imposed as a | cacc tax until !H!'2. lull fr nn that year it has remained in one form or another as a ] ermanent si.line of national nwemie. 'I he rate has varied from time t i time and Was as high as Is Id in the pouml from 13AA t i ISA 7. the peried covering the con lusioii of the Crimean wav. anil as low as 2d in the pound from IS7I to 137(1. when (Irenl Ilritain nt:peared tn have entered upon an era of profound peace. Till: GHADEATCI) SYSTEM'.

The first graduated system of income tax was introduced in (licat Britain in I tllin, ami in the following year the rate was Is 2d in the pouml and the exemption limit was .2100. Harm'd income ] aid 0d in the pound up to a total of 22.020 and Is up (o £:!.IIQI). Earned inocmcs over £2.(.0f! and all other incomes paid Is 2d in the pound. (I’rndimtimi was effected tartly by certain abatements on the lower incomes and tartly by a supertax which was charged cut incomes of £.-».()CO and over at the rate of fid in the pound fur every pound hv which the income exceeded £H.OHO. 'I here was no further change in the tax until 11)1 I. just a week I efore the oiilhreak of the great war. when the rate was increased from Is 2.1 ill l!:e found in Is fid and a super-tux imposed on ali incomes exceeding .211.1'O'h 'I he system of graduation, however, was changed. Instead of increasing at a uniform rat" of (id ill l lie | omul, this super-tax was charged on the incomes in cxe. s of 22,•')<!:> on the zone system in seven .sii-cessive •/.ones rising from Ad to ]s !:l In the mimid. NIT KSSITIES OH I lII'. WAIF The necessities of the war lon oil upon the Imperial (iovelnmenl a huge increase in the income tax. hut it kej l as closely as possible to ilia pre-war systeia of a stamhird tax :it a Hat rate with a sujier-tii.x cm tlie huger incomes. The tax, jncvi'.ah'y. lieca.inessteely gradii.ilc |as the income - rose ami l hi - gradual ion ..till chi di.s. 'I he md\ do jarfuic. m.cl" liolil llm . iaiiil.ili! tax ami tin- supet tax were the excess protits (ax. which has been lepoalod, ami the cnnipa.ra.tively Miliili c up. ration tax. which last year was . c n-ideraMy reduced and new. a. cordin '. I > a lcccnt cable message, is marked dun n lor extin. tiult. The stn.nd.trd i.ix in (irettl Ihitain is mc.v !s (id in (lie pound. The first £22") of taxable income is charged at half the amount of the standard rale, that is 2s :i I in the pound, whir all taxable income hovou I the first £22"i is charged at the slamlard rale.

Su] cr-tax is im; o-.ed upon every indie id) al w Ins' total income from all .sources exceeds £2.0011. This tax i.s ill addition to the staudanl' lax ami in assessing the super-tax the abatements in c-niim-etimt with the standard tax are not allowed. Here is how the tax wc 1 I.s old : (hi Ihe lirst £2.000 ol incolile nil ; next £7.110. I> ti l ill the | ollnd ; next 2000. 2s; next £1.01.0. 2s lid: icxt £l(::i(l, its: next £IO2O. .’ls (id : next .£1.0.10. 'ls; next 21.000. Is lid; next £12.1.01. .-'.s; next £IO.0:iil As (i I : above £(10,(11)0 (is. A (lilferentiatinu in favour of earned in come allows a deduction of one-ton! !i from the taxable income.

subject to a maximum deduction ol 2200. ft)A! FAN Y TAXATION. 3o far only the taxation of individuals under the liritish .system has been considered. The taxation of companies under the system is different itt s a very important particular. Companies ptty the .standard lax on till their profits, hut they are deemed to pay it a.s agents for their shareholders. They deduct the standard tax from their shareholders dividends and the shareholders then adjust their payment directly with the' Taxing Department. If a shareholder, by reason of his ex-

einptions :iml iomon t s. fur instance is not liable I'nr :«liv t;ix. then 11n' I whole of t!io amount deducted from his dividend l»v tlm cim.nany is lefimdcd to liiin, If the .slmreliidder is linlde to h:ilf the standard tax he reieivcs is 8d in the pound liy wav . f Icbalenicnt. ll the shareholder is liahle for thh unnmnt of the standard tax (Is (Id) then no adjustment is no;e.ssary. If. on the other hand, tlie .xliaiehohler is liable for super-tax. thou he lias to make payment of the additional amount according to his graduation. direct to the Taxing Department. I’mler this system tln> only tax that finally rests on the companies is tin* Is (VI .standard tax on their undivided profits. This standard rate is less than halt the avet'ace rate of lax paid by the very la roe peisonal incomes in England. and only slightly over (10 per cent of the average tax jiaid under the highest graduation rate in Now Zealand. It lias heen intended to set out lie re the N'ew Zealand system of taxation, for the sake of comparison with the Hi i t ish system: hut these notes already have run into considerable space. With the permission of the Editor, the New Zealand system will form the subject of a further budget.