INCOME TAX AND EXCESS PROFITS.

Manawatu Herald, Volume XXXIX, Issue 1711, 12 May 1917, Page 3

INCOME TAX AND EXCESS PROFITS.

The Mercantile Gazette is pleased to note that in the annual report of the Wellington Chamber of Com-merce-mention is made oi the excess profits tax of last year. On repeated occasions the Gazette has referred to the injustice in certain eases of the legislation in this respect. Their contention has been that a graduated tax would have, been more equitable, as under the present system many young and struggling businesses are forced to pay out large amounts in the way of taxation while longer established and more wealthy linns practically escape altogether. In reviewing tho history of (he measure I lie report of the Chamber goes on to state: __ “The Act. has undoubtedly proved (o have been unfair in its operation as far as the taxation of profits from young ami progressive businesses has been concerned, the percentage of tax eollocted from many sueh concerns being disproportionate to that collected from olderestablished businesses. It is sincerely hoped that if this system-of taxation is to he continued during the current year, some more equitable method will lie devised, in many cases what has been collected has no! been the proportion of income derived from transactions which have been profitable as a result of war conditions, hnt rather a proportion of profits consequent on the natural expansion or progress of the business which under (he provisions of the Act have legally been deemed ‘excess profits.’ It is not questioned (hat taxation at this time must be heavy, but It is an accepted principle of all taxation that it shall he equitable in its incidence; it is considered in many quarters that the provisions of (be Act regarding (be taxation of ‘excess prolils' have not carried out Ibis golden rule, and as a consequence have inflicted hardship in many cases.’’ This matter should be (aken up by ('liamhers of Commerce and associations of business men throughout Ibe Dominion in order to have (he matter pul right during (he coming session, ll is useless waiting for Parliament to meet and (ben make a hurried request for amending legislation. The point, is that the average politician has little knowledge of the incidence of taxation. This was clearly shown by the Act of 1!) 1 (5, which was passed with little comment. Members of Parliament require enlightenment on this matter, and business men or commercial organisations will need to supply the facts if an equitable system of war taxation is to be introduced. The lime for action is (lie present, not when the demand from (lie Tax Department is received. It is quite true that the Commissioner of Taxes lias wide discretionary powers under the Act, and as far as our knowledge goes (continues Die (Jozelte) the official has used those powers fairly and impartially. Where, good cause has been shown, we believe the Commissioner lias met the taxpayer to Die best of Ids ability. Bui notwithstanding the good intentions of the head of the Income 'fax Department, the unasscssed for excess prolils lias still a rough row to hoe. In the Wanganui, Chronicle of ,‘frd April Die matter is dealt with editorially, and a particularly glaring anomaly is quoted. The case is as follows;—

‘‘i\lr H, has for years paid income t.ax on an average yearly amount of £.1,000. Since (he war started his taxable income remains similarly—there is no increase in bis earnings, and, therefore, no war (ax of-Id per cent. Mr A. has never, previous to the war, paid income tax, because bis earnings have been not over the exempted amount of £SOO. Since the war started he has purchased an old-eMablished business which for years has shown an average taxable profit of ,Cl,ooo. This business was purchased from Mr it. if Mr 11. still owned the business, and it- showed no increase in profits, Mr H. would not, as I understand it, pay Ihe 15 per cent.'special war tax, because his income is no greater than during the one, two, or three yiars previous to (he war. Hut ■"ith A. the position rapidly cluing'•s. Ills income changes from nothing taxable to i'KOOO. And because Mr A.’s earnings are not Cl,ooo greater per annum than they were before the war he is taxed with the special lax of 45 per cent. (£450), where as Mr H.. if he.still owned the business, would not Inrequired to pa.y the special -15 per cent. tax. Mr 8.. in his new venture, still earns £I,OOO, but is not required to pay the 45 per cent, lax because his earning is no greater limn before the war."

The Wanganui Chronicle referred I lit* above case to I Ik* Commissioner of Taxes, who furnished (his rep!y

“Till* Cils(‘ of I)., whose income remains unchanged. is correctly s<ate<i in I lie letter. In the case of A.., however, there are two options granted under the provisions of the Act. Taking 1 his assessable income at £I,OOO and his standard assessable income, i.e., his income before exemption is deducted, as £2OO, Mr A. will be entitled to add to the £290 71 per cent, on the additional capital employed by him in earning the greater income for the later

year, so he would be entitled to I nice ns his slumlord income 7f j)er eeiii. on the enpitnl invested by him lo produce his income with ;m allowance for his personal serviees, not in nnv ('use to exceed £()<)(). It i! was found nfler adopting either of these o]ilions thnl the compulation of the slumlord income in the mnr.uer imlicnted would (mtuil sen - ous hardship, Mr A. may apply to the Commissioner for special consideration under Section 19 of the Finance Act, Unit provides that where the Commissioner is satislied that serious hardship would be imposed on the taxpayer by the computation of his standard income ns already set out, by reason of the recent commencement of the business, the Commissioner may commit e the standard income in such manner as, having regard to all the circumstances of the case, he deems jus! and reasonable.”

As (he Wanganui Chronicle remarks, (he information supplied by ihe Commissioner is satisfactory as far as it goes. The official may extend the necessary leniency, but that is beside Ihe mailer. A. and U. should be treated similarly. If both make extra prolits through the war each should be taxed in the same

proportion. While it i> m 1 111 i)led that in some cases new businesses which 'mve sprung up since (he war are making hie profits out of the necessity of the Empire, it should not he overlooked (hat there are hundreds of businesses where a lax able income lias only come into being since the war, due, not to the conflict at'all, but to (he industry of the owners. These men should not be penalised and at (he same time concerns with substantial though steady incomes over a period of Sears he let off with nominal surcharges only. We trust (concludes (he (Jazetle) that this subject will be given the attention it deserves, and that the injustice and hardship inflicted hast year will be removed. We notice in (he daily newspapers that it statement was extant that amended legislation would be introduced, but this wits subsequently qualified by the Commissioner of Taxes, I( rests with the commercial community to see (hat an adjusting and more equitable measure is brought down.