THE EXCESS PROFITS TAX

Otago Daily Times, Issue 24423, 8 October 1940, Page 6

THE EXCESS PROFITS TAX

The desirability of preventing what is known as, profiteering is generally acknowledged. . The Excess Profits Tax Bill, which has been introduced in the Lower House, represents a comparatively straightforward method of securing this end. The principle of the Bill is to tax the taxpayer 60 per cent, of the residue of excess profits after the payment of the income tax, social security tax, and national security tax on those profits. For the purpose of ascertaining this residue, the income tax on the excess profits is taken as being the difference between the income tax payable on the whole income and the amount of income tax that would have been payable if,what is described as the standard income only had been received. The standard income may be selected by the individual taxpayer from one of three methods of assessment and by the company taxpayer from alternative methods. Salaries and wages in the ordinary sense are exempt from the tax. The Bill follows fairly closely the Profits Tax Act passed in Great Britain in 1937, which first applied only to armaments profits, and was extended in the first Budget after the outbreak of the war to cover profits over the whole field of trade and industry. The British tax, which was originally 60 per cent, on the profits of companies above the prewar standard, was later increased to 100 per cent, of excess profits. There may be a weakness in the rigour of such an imposition since .companies or individuals may not operate their undertakings with the greatest regard for efficiency when the profit incentive is entirely removed. A certain incentive to increased effort is, however, provided for in the Bill now before Parliament, and, it properly provides for objection being taken to the excess profits assessment. It will be in no spirit of failure to appreciate the vital reasons for controlling profits in war time that a considerable number of businesses may find the impost falling so severely upon them as to limit their activities or hinder expansion. In the case of new industries or businesses which have been making a slow recovery from the depression years, the assessment will have to be sympathetically considered, and it is to be hoped that in the matter of meeting objections no too rigid

interpretation of the taxation schedule will be employed. Coming additionally upon companies and persons already very heavily burdened with emergency obligations, including the compulsory war loan, the new measure must inevitably have some general effect upon the economy of the 'community. It is, however, one that will be accepted in its principle without cavil, and as to its actual demands upon taxpayers will be met cheerfully.