TAXATION.

Hokitika Guardian, 18 September 1924, Page 4

TAXATION.

■ENGLISH AND NEW ZEALAND SYSTEMS. RADICALLY DIFFERENT. 111. (Contributed.) Jt will have been gathered from what already has been written on this subject that there are two radical differences between the English system of income tax and the New Zealand system. In England the tax is purely an individual one, and is levied accordingly, companies being regarded as the property of their shareholders, and each shareholder being responsible, at his rate of graduation, for the taxation of Ids share ol the profits. Ihe only tax levied on companies is that on their undivided profits. As these profits could not he taxed in the hands uf the shareholders, the charge obviously must lie levid through the company, ultimately, of course, to he deducted from the shareholders’ accruing profit s. It already has been explained how shareholders’ dividends lire taxed and how* each sharohoUiei pays according to his graduation as an individual. 111 New Zealand, on the other hand, ii company is treated as an individual, and its profits are taxed as if they all belonged to an individual, wii.ii the exception that the company receives none ol the tax tree allowances and concessions extended to the individual. taxing the small man.

If ail individual were entitled to all these allowances instead 111 paying at the rate of, apnrnxiinutely, ibjd on a taxable income of (MOO lie would pay at the rate of Id. An income of G7OD. instead of paying Is would pay "Id, and income of L'Kldil, instead of paying Is 2.1 Would pay 10’d, an income ol L'l3o;>, instead of paying Is (id would pav Is Id, and so on through till the stages of graduation. Hut under the

present system of company taxation, the shareholder, even if his income is below th" exempt iein ol WHO. does not receive his dividend until it has been reduced by the amount of taxation the company has been compelled to pav. in the ease of companies of any considerable size 3s Hid in Dm pound. It has lie'.'ii shown beyond all dispute that the company tax is not borne by ;i few wealthy people, but by a large number of people of moderate and small means who would be taxed very lightly, if taxed at all. were the English system in operation here. The other great' difi.'.r. ‘live between the English system and the New Zealand system is that while there are no tax flee nor lightly taxed investments in Eritnin, there are a very considerable number ol suelt investments 111 New Zealand, enabling people ol large means to esrane (heir adequate sluin' of taxation. A FIRST I’ll I NCI ELK. In Eiilain it is considered important that each individual should he taxed ilium the whole ol Ins iuconi" from whatever re it may he derived. and to enable ibis to he done it it necessary that each individual’s income from all sources should he hruiiglit together in one amount and that there should he no dillerciice ill the rate of tax upon income derived from dilferent sources. In New Zealand there is no uu'lhod of aggregating the income of an individual lor the imrpo.se of determining the 1 lie ol income tax lie should he charged. Apropos of this the Kriusli Royal Commission on Taxation, which -at in 1820

made the follow ing pronount'cmcul: - • • \\'e are satisfied that any attempt t: 1 mec.siire I I.sable capacity by a system Holt is not bast'll upon tli ■• amount ef the inmiue by a systole that looks to the way in which mi income i s earned. I 1 the circumstances in which it is 1 revived In I lie hum's of labour or to th" lomlitieiis midor which tic .verb i . perliirm*.".! w" , dd < :, u ■' '' "t iniiisl ice • a- between one tm.pa.' vr and 1., , 01.1 I- "I t" (o I- I• e H'b I e: lilts." Th- eseess pro'ils lax and I lie e„r puralioii prolils lax were Ihe only ex eeptioiis to tin.' principle laid down in this prntiollln elm 111. The exeess protits tax was found 111 prunin' In be wholly unsatisfactory in its operation ami was speedily abolished. I lie corporation tax lingered a lilllr longer. Originally il was a tax of 3 per cent on the net earnings of companies with an exemption of L'3IHI ami with a proviso that the tax should not ex'ceil Id per cent ol Ihe balance of Hie profits alter deducting fixed interest or dividends payable to debenture-holders and preference shareholders. These rales last year wore reduced by one ball, that is to 2! per cent and 3 per cent respeeli v ely, mill lIIIW the lax has heel: abolished altogether. DENOUNCED E.Y ALL EAISTIH3. Though the corporation tax. alter being denounced ill turn prnrlieally by all parties, is now repealed, il may be of interest to add a line or Iwo to ils obituary, teeing that with the excess prolils tax it eoustituled the only approaeh in ihe English system to the New Zealand system. Of the total

ai in ill n t collected by way i.T income laxin Britain something less than li per rent came front ibis tax. Mr Baldwin, u h.o was then Prime Minister and Cham ellor of Ihe Exchequer. in his budget .speech in the liotlM* of Cniumoils mi April |."i last year indicated its imiiemliii;.*; doom. "I leel,” he said, "t hat I must make some change in the ('orimration Profits tax. liveryciie admits 11tal this is mil a good lax. Many people think it bears exceptionally heavily on enterprise and industry. I cannot give il up entirely, hut I propose ui reduce it by i.ne-liall, reducing the rale from Is to lid in the

I mil ml in respect ol profit > arising alter dune itlltli next." Sir I’obert Horne, ('liaMe-elhil* ol the Lxehequer ill (In' former Xalional Doveriimeiit, in :1 . j,'*eeh reported in I he London "Tiines" ol April n 1!*23. stated that lie slrongly advoiale.l the lepeal ol "that most unjustifiable lax, tTie* curperalinii pnrlilx tax." Since then 1 lie Labour Party lias assumed nlliee in England and one of its llrst imporatnt steps in tin* linaneial held has been to remove from the Statute Pool; a measure which both Liberals and ITiionists have denounced. Il is evident, therefore, that this comparatively slight departure from the individual system of taxation had offended all parties. XF.W ZF.AI.AXD’S ISOLATION*. New Zealand is pursuing an exactly opposite course in regard to tho income tax from the one that lias commended it sell to all the parties in England and to all the parties in other British countries. Here in the finaiiiiai year 1020-21. 03.11 per cent of the income tax collected was obtained from companies, in 1021-22. < 2.00 per cent and in 1022-23 00.13 per cent, an average ol (10.8.) per cent. Iho liguios for the linaneial year ended .March 31 are not yet available, but they probably will show a somewhat smaller proportion of the income tax obtained

from companies, there having been a reduction in the rate of this tax ami a large increase in the volume of Customs revenue. This, however, will not effect the principle at stake, any more than tlie comparative insignificance of the corporation profits tax in Fnghind lessened the indignation of any ol the parties at the character ot the impost. Before proceeding to show the practical effect of this country's persistence in the company tax. it may lie well to mention that no other country in the world is employing a similar system. In Australia there are two income taxes, the State Tax and the Federal Tax. All the States charge companies on a flat rate, Victoria tit Is in the pound, Western Australia Is oUI, Tasmania Is (id. South Australia As lid. Xew South Wales As (id, Queensland ;t s 7,1 and Is Oil —Us od other companies. The dividends in all cases are exempt from State tax in the hands of the shareholders. The Federal income tax j s a flat rate of Is in the pound on all company profits, but State tax is deducted from profits. Dividend- are exempt from Federal taxation in the hands of the shareholders, unless, if included in their assessment, they would pav at a higher rate than Is in the pound. In that ease the tax paid by the cc.mnany is credited. This clears the way for an examination of the effects of the New Zealand svstem.