INCOME TAX.

Taranaki Daily News, 25 April 1918, Page 4

INCOME TAX.

The Hon. H. F. Wigram, of Christcliurch, lias recently contributed, to the LyttelUn Times a series of articles oil the income tax system in force in New Zealand, and lie has had them reprinted in pamphlet form, a eopy of which -wo acknowledge. The articles are very illuminative, and show the necessity that exists for an immediate alteration of the whole system, or lack of system. It is a canon of taxation that income taxation phould be placed on the shoulders best able to bear it, but the New Zealand system departs from this desirable principle, and inflicts grave hardship and inlustice on many peoplo. This condition ivas considerably aggravated last year ivhen the Minister of Finance brought down his proposals for increasing the tax 011 public companies. Sir Joseph l\ard has never been able to justify the measure, except on the grounds of convenience, notwithstanding the. protests that have been made from time to time in Parliament, and by various chambers of commerce. Anything more unsound or unjust could scarcely be found in any scheme of taxation, and it is difficult to understand how a man of Sir Joseph Ward's experience and knowledge allows the law to remain a single day longer on the Statute Book. The injustice conies in that the tax. is levied on income, without regard to the amount of capital used in earning that income. Thus, a company with a small capital and earning £I6OO per annum pays, with special war tax, 24.8 d in the £ (say 2s), although it may pay a dividend of 25 per cent, or more, while a company whose income exceeds £O4OO pays 7s Od i« the £, although it may not be in a position to make more than a trifling return on its large capital. The Horn Wigram; in dealing with this phase of tl,p taxation anomalies, instances the hypothetical case of two companies, one with a capital of £350,000, on which it earns .£7OOO, or 2 per cent.; the other with a capital of £SOOO, on which it earns £IOOO, or 20 per cent. The taxation on the first company will be at the rate of 7s Od, and that on the second lO.fld in the ,C (»ay Is Sd). After payment of taxation'the first company will return 1* per cent, and the second 18.3 per cent Let us suppose that A and B each hold an interest of £IOOO in companies euch earning 10 per cent, on their capital. If ! thero WCTO 1,0 "iconic tax eacli would receive a dividend of £IOO. But the Department steps in and says to A: "You are guilty of holding shares in a large company, whose income exceeds £6400. e are therefore asking the company to on your behalf 7s 6d in the £ on your £IOO, and y OU will receive the refining 12h 6d, or £ 62 10s ." Bj on the ot ler hand, who happens to hold shares m a company whose income does not exceed £1 COO, gets off With a deduction of " W f■ and P° cke ts a dividend of £.O, though he may have income from other sources greatly in excess of that t A And it is not only i» hig in( . ome ; that A M adversely affected. The Stock ' change share quotations are based on ' dividend returns, therefore before the ad- ! vent of the progressive tax, A's and B's : Shares returning the same income, would ' have bee. qlloted at the same , vhat now happens? The Department i steps in and A's company dividend is reduced to £6 5s Der nnnf os per cent., as against the - Z 1 :: PaW by B ' s «»»Panv, so ' that the ratio of value of the two "com-'!

shares would l»: Unit if A's sharps ( v<w worili ;C 100(1. It's would he worth t-t-MO. (i\v, Zealand's development has largely been due to the activities of public companies, and they Should lie encouraged, and not discounted. If the present policy is continued the ultimate effect must be to restrict tile in-j vestment of capital in commercial and! industrial enterprises. 'Hie country, of course, must Jiave the .revenue, but this can easily he secured by increasing tlie graduations over a certain point on the profits distributable. The Canadian system lias much to commend it. There companies are freed from taxation up to i seven per cent., and every shareholder : becomes an income taxpayer up to the «ross amount of Ms income, subject to the usual exemption. The tiovermnent then takes from the company as much of the balance over and above the seven per cent, as is needed, even if it means nil. This does not affect the share stability of the company, cause loss to the Shareholders, nor impose injustice upon those who have their limited means invested in public, companies. We are aware that some measure of relief has been given by the Government to dividend Receivers from ordinary companies, where the total personal incomes do not exceed £400; but the fact remains that at present many people are made to pay taxes who should not pay them, and those in a position to do so are escaping from paying their full share.