CORRESPONDENCE.

Taranaki Daily News, 3 April 1922, Page 2

CORRESPONDENCE.

taxation anomalies.

(To the Editor.) Sir, —In a letter dealing with this subject you already have been good enough to publish for me I endeavored to show the anomalous operation of the income tax* in its application to companies, and ventured to say that the perpetuation of the injustices I pointed out wan . due to succeeding Ministers of Finance seeking the line of least resistance inster J of the democratic gaol of equality of sacrifice. Acting no doubt under the. advice of their taxing officers, they have mad£ companies subject to the maximum rate of income tax—now rtblninalTy 8s 9d—3s 5d and actually, substantially f more—and so deprived their sharehold- ' ers of approximately half the fund -from ’ which their dividends are paid. This arbitrary proceeding takes no - account of the incomes of the shareholders, whe- ; ther small or great, with the result that the man wit'll £5O invested pays at just the same rate as does the man with £50,000 invested. The plain truth is, of course, that the officials find it more convenient to collect the tax from a . company in this inequitable fashion ; than it would be to collect it from the i individual shareholders, and therefore on the score of expediency persuade the political head of their Department to continue a flagrant injustice which has been doubled and trebled and quadrupled since the beginning of the great war and the hugh increase of taxation that catastrophe involved. Were this argument of expediency employed by a highwaymen to excuse the annexation of such property as happened to be most easily reached, it would not be particularly surprising, having regard to the moral "plans of its author; but when adopted by a taxing authority it has a - jarring sound in ears attuned to a I higher ethical standard. I had not in* ; tended to pursue this aspect of the subject further, but since writing my first letter I have come across a most interesting little pamphlet issued four years ago, when the maximum tax was 7s 6d in the pound, by the Hon. H. F. Wigram, recognised as one of the closest observers and one of the most capable financial authorities in the Dominion, from which I am tempted to make one or two brief extracts. “The injus* tice of the present system ought not to need demonstration by argument,” Mr. Wigram wrote at that time. “It has been made the subject of protest by Chambers of Commerce and by business men throughout the Dominion. It is true that the tax is paid in the first instance by the companies, but it conies out of the dividend fund and reduces the return to the shareholders pro tanto. Practically two shareholders, one with an income of £lO,OOO per annum and the other with £3OO per annum, are each called upon to pay the maximum progressive income tax.’” This is the bald, staring fact, the .epitome of all the anomalies, that must be iterated and reiterated till the menace to production, trade and commerce is removed. But Mr. Wigram does not leave his subject there. “Even between companies,” he goes on to say, “the tax works out unevenly, because the taxation is on income without regard to the amount of capital used in earning that income. Thus, a company with a small capital and earning £1,600 per annum pays, with special war tax 24.81 d, in the pound, say 2s, although it may pay a dividend of .25 per cent or more, while a company whose income exceeds £6,400 pays 7s 6d in the pound, although it may not be in a position to make more than a trifling return on its large capital. Tajce, for instance, the hypothical case of two companies, one with a capital of £350,000 on which it earns £7OOO or 2 per cent., and the other with a capital of £5OOO, on which it earns £lOOO or 20 per cent. The taxation on the first company will be at the rate of 7s 6d in the pound and that on the second company at Is 8d in the pound. After payment of taxation the first company will return li per cent, and the second 18 1-3 per cent.” Mr. Wigram, it will be remembered, was writing when the maximum rate was 7s fid in the pound and began at an income of £6400. The position of the larger company would be so much worse to-day. One other passage from this pamphlet, in which Mr. Wigram drops into a prophetic vein, must be quoted. “I question,” he says, “whether the effect of the present system on capital values has as yet been fully appreciated. A reduction in inevitable, unless the progressive income tax is readjusted, but the full effect will not be felt immediately. Some companies are struggling to maintain their dividend rate in the hope that the clouds will pass by, and in doing so are tempted to strain resources by using money which in past years would have been more prudently carried to reserves. Even when dividends have been reduced owing to taxation it will take time before the market drops to its ultimate level. Shareholders who are not compelled to sell will hesitate before accepting the inevitable.” These are the words of a broadminded, far-seeing man, who has given abundant proof aa a financier, a legislator and a newspaper proprietor that his sympathies are whole-heartedly with the small man and that his concern is for the promotion of the best interests of the whole community. But these extracts have placed another severe tax l 'upon your space and again I must ask your permission to return to the subject again—this time briefly.—l am, etc., EQUITY.