DEBENTURE TAX

Hokitika Guardian, 10 December 1925, Page 4

DEBENTURE TAX

HAZE OF UN CERT ATNT V

■WELLINGTON, Dec. 1

Tho treasurer of one of the largest local authorities in the Dominion has found that there is evident confusion in the public mind over the taxing ol debentures. Tin's, he thinks, may be duo to the mixing up of income derived from company debentures with that derived front investment in local body loans. Referring to the matter to-day, the treasurer said: “I have been much surprised at the statements made from time to time throughout the country, even by .Ministers of the Crown, in regard to what seems to lie considered preferential treatment in respect to taxation on local body debentures. There appears to be a general impression that the present system ol fixing a special rate of Is Od in the t 011 terest from local body debentures is giving local bodies some undue advantage.”

“Now what is tho o.xac-t position:' prir.r to April. 1024, tho income-tax on interest derived from local body debentures was 2s 0d in the £, and since that time it has been fixed at Is (>d. This does not mean, however, that an arbitrary rate ot either 2s 0d or 4s Od per L* income-tax Ts levied on local body debenture interest. It means only that investors in local body loans, it* taxable, are assessable at their own appropriate rate oT income-tax. and. if exempt, are not- liable at all. In other words, the investor pays on in-

terest derived from local body debentures up to 4s o'l in the £, at whatever may be Ins assessable rate. 11. on the other hand, he is taxable at. say. os Od per £. then on so inueh of 1 1 is income as is derived from local body debentures he pays at ihe rate of Is Oil per £. NO LOXOHK rSKI-TU “Fvidenl.lv this special form of taxation was originally meam lo popularise local body debentures, Ltil its eilect lias long been minimised 1 y ihe ehanj.se in tile financial market, and is no longcl' i) help to luciil ouie.s. Nor is it ;m mlviintiige to investors, excepting those pitying u higher rule ol taxation than Is (>J in the £. As, from experience. large income-tax payers Jo not invest in local body debentures, it M-nidd seem that this special form of taxation is of no use to anyone, and could very well D' entirely abolished, leaving ihe investor to pay income-tax on 1 1 is debenture interest in Hie same May as 'he does tut bis ordinary in-

come. “If this special form of taxation Mere abolished, all d.utbf and difficulty would be remove.l. As it is now, the probable investor is confused. the actual investor from time to time onsettled, and a great deal el unnecessary public discussion and criticism arises that could l e avoided. For instance, the Associated Chambers ol Commerce, in conference in Dunedin, had before them a remit asking foilin' abolition of the present difference between debentures issued prior lo April. Hr.’-!, and those issued subsequently. Then, again, the Taxation Commission recommended Hint the favoured position of local Indy and company debentures, so far as incometax is concerned, should liu abolished. NOT A CONCUSSION. “The conclusions of the Taxation Commission and the remit before tho Chambers of Commerce call be supported. but. for directly opposite reasons, as, if careful enquiry Mere made among the local bodies alfceted, it Mould be found Hint the present form of debenture tax is nol considered by them at all as a e ilicessioti. but rather as an undesirable and unnecessary provision, which could noth advantage to the local bodies concerned 1,-.- abolished from the Slat llie Book. The local position of the investor assessable up to Is (id in tin* £ would be llliclia liged, and local body debenture loans moiil I no longer be surrounded by the li.aze of uncertainty caused through there bong a. nominal lax. which is aeiually no tax at all. “The following figures an- taken from a ri'lurn prepared ly a public body n Il'ich issued a loan In the public of IJO debenture-holders: (>•">, or o I.D per cent., bad incomes under £!i()0. and r,r<. or lo.S.'f per rent., had ineome.s over I, 'VO. This return m;i- prepared from information obtained alien the debt i'ii t lire lax rate was ”s (id in the £. Nov thiil (lie rate is Is (id in the C. tin' result made clear bv these lignieis proved hcynml question."