TAXATION AND ITS INCIDENCE.

Shannon News, 12 September 1924, Page 3

TAXATION AND ITS INCIDENCE.

BRITISH INCOME TAX. FIGURES AND FACTS. IT Towards a proper understanding of tlie meaning and significance oi tiie income tax in New Zealand it will be helpful to- know something of tlie history and operation, oi tlie income tax in Great Britain. By a vast majority ol; the people of the Dominion Great Britain, is recognised as the '“Mother Country,” from wfiiclf they have derived not only their racial traditions and aspirations, but also their political, commercial and social institutions. This is only natural. The great bulk of New Zealand’s trade is aonei with Britain, a large part of its capital lor both public and private undertakings is obtained from the same source, and the currency and the financial systems oi tlie two countries are practically the same: This being the ease it does not seem unlikely, having regard to their different circumstances as well as to their intimate associations, that the Dominion nuiy have something to learn in this matter of taxation from the experience and the policy oi the Parent btute. THE BEGINNING. So long ago as the filteenth century certain sources of income were taxed in England, hut the arbitrary levies of that remote time have little bearing upon the present situation in New Zealand. It was not, until 1798, during the reign of .George 111, that tlie younger Pitt, as great a finance Minister as his father lhad been.a War Minister, devised the first income tax in Great Britain ior tlie purpose oi assisting in tfie prosecution of the Napoleonic wars. This tax was regarded purely as a war measure and in 1815, when Waterloo had made its continuance unnecessary, it was repealed. It was not imposed as a peace tax until 1842, but from that year it lias remained in one form or another as a permanent source of national revenue. The rate has varied from time to time and was as 1 'high as is 4d in the pound from 1855 to 1857, the period covering the conclusion of tlie Crimean War, and as low as 2d in the _ pound irom 1874 to 18M, when Great Britain appeared to have entered upon an era, of profound peace. THE GRADUATED SYSTEM.

The first graduated system of income tux was introduced in Great Britain in 1999, and in tfie following year tlie rate was is 2d in the poune and tiie exemption limit was - jlmgu. Earned incomes paid 9d in uie pound up to a t°tal of £2OOO, and is up to £SOOO. Earned incomes over £3OOO and ail other incomes paid Is 2d in the pound. Gra/duation was'effected'partly by certain abatements on the lower incomes and partly by a super-tax which was charged on incomes o. £SOOO, and over at the rate of Gd in the pound ior every pound by 1914, just a week before thefoutbreak of the great war, when the rate was increased irom is 2d in the pound to Is 3d and a suiper-tax imposed on ail incomes exceeding £3OOO. The system of gradation,.-however,- was cuangea. Instead of increasing at a uniiorm rate of 6d in the''pound, this supertax was charged on the incomes in excess of £2500 on the zone system n, seven successive zones rising irom 5d to Is 4d in the .pound. ‘ • NECESSITIES OF THE WAR. The,- necessities of tlie war forced upon the Imperial Government a huge increase in the income tax, but it kept as closely as possible to tlie pre-war system of a. standard tax at a fiat rate with a supertax on the larger incomes. The tax, inevitably, became steeply graduated as the incomes rose and this.graduation still obtains. Tiie Only departures made from the standard tax and the super tax were the excess profits tax, which has been repealed, and the comparatively small corporation tax, which last year was considerably reduced and now, according to a recent cable •message, is marked down for extinction. Tiie standard tax in Great Britain is now 4s Gd in tne pound. The first £225 oi taxable income is ciiarg'ed at hall tiie amount of tlie standard rate, that is 2s 3d in the pound, while ufi taxable income .beyond the first £225 is charged at the standard rate. Super-tax is imposed upon every individual whose total income from all sources exceeds £2OOO. This tax is in addition, p the standard tax and in assessing tlie super-tox the abatements in connection with file standard tax are not allowed. Here is how tlie tax works out: On the first £2OOO of income mi; next Is 6d in the po.und; next £SOO 2s; next £IOOO 2s Gd; next £IOOO 3,-; next £IOOO ?& Gd; next £IOOO 4s; next £IOOO 4/6; next hie,ooo 5s ; next £IO,OOO 5s 6d; above £30,000 6s. A differentation in favour of earned income allows a deduction of onetenth irom the taxable income, subject to a maximum deduction of £2OO. COMPANY TAXATION.

So far only the taxation of individ-

uals under tiie British system has been considered. The taxation of companies under the system is different m a very important particular. Companies pay the standard, tax on aU their profits, hut they are deemed to pay it as. 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 fits exemptions and abatements, for instance, is not liable for any. tax,' then tlie whole of the amount deducted from his dividend hy tlie company is refunded to him. II the sharetiolucr is liable to hold the standard tax he receives 2s 3d in the pound by way of rehatement. If the shareholder is liable lor tiie amount of the standard tax (4s 6d) then no adj ustment is ’ nejtssary. If, on the other hand, the ■•shareholder is liable'for super-tax, then lie has to make payment of the additional amount, according to Ins graduation, direct to the Taxing Department.

Under this system tlie only tax that finally rests on the companies is the m Gd standard tax on their undivided profits. Tins standard rate is less than half the average rate of tax paid by the very large personal income in England and only slightly over 60 per cent, of the average_tax' paid under the highest graduated rate in New Zealand. It has been intended to set out here the New Zealand system of taxation, for the sake, of comparison with the British 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.