EXCESS PROFITS

Wairarapa Times-Age, 4 October 1940, Page 5

EXCESS PROFITS

GOVERNMENT’S TAXATION PROPOSALS BASIS OF ASSESSMENT. OBJECTIONS TO BE HEARD BY COMMITTEE. (By Telegraph—Press Association.) 1 WELLINGTON, This Day. The Government’s proposals for taxing excess profits made during the war are given legislative effect by the Excess Profits Tax Bill, which was introduced yesterday. The rate of the tax, which 1 does not apply to salaries or , i wages, is to be 60 per cent of a the residue of the excess profits which is left after income J tax, social security charge and national security tax 1 have been paid on them. i The Minister of Finance, Mr Nash, ’ said the second reading debate on the Bill would begin next week, probably , | on Tuesday. An explanatory memorandum circul lated with the Bill states that the pro- > posals involve the ascertainment by I the Commissioner of Taxes of the . amount which constitutes excess profits and the issue of an assessment accordingly. Objections based solely on the ground that the Commissioner’s assessment is not in accordance with the statutory provisions binding on him are to be determined under the ordinary income tax procedure, but objections on the ground that what appears to be excess profit is not so or is not wholly excess profit are to be dealt with by a special committee con•stituted for that purpose. (Continued on Page 2.) NO REVENUE WANTED MINISTER ON PURPOSE OF BILL. POSITION OF FARMERS. (By Telegraph—Press Association.) WELLINGTON, This Day. “I hope we will get nothing out of this taxation,” said the Minister of Finance, Mr Nash, in reply to a question in the House of Representatives as to the estimated profits tax. “I hope there will be no revenue from it,” he continued, “for that will mean that no one is trying to profit out of the war. That is the purpose of the Excess Profits Tax Bill.” \ An explanation generally in the terms of the memorandum accompanying the Bill was given by the Minister. He said that the excess profits were 'divided on a 60-40 basis with the Government. An Opposition member: “Who gets the 40?” The Minister: “The State gets the 60.” (Laughter.) Provision was made for the taxpayer who performed personal exertions in earning his income, Mr Nash continued, after defining excess profits. He said that such a taxpayer might be allowed either £5OO minimum or £lOOO maximum for personal exertion. The Leader of the Opposition,, Mr Hamilton: “When does this start?” The Minister: “Excess profits do not become assessable for tax till after April. 1941. If the normal procedure is followed, no excess profits will be paid till February, 1942.” “It is a very simple procedure,” Mr Nash continued. “The Commissioner of Taxes assesses the excess profit. A committee is to be set up, and it will be given power to determine the ex- _ cess profit if the taxpayer ap-‘ peals. It will be limited in only two ways. It cannot assess the excess profit lower than the figure the taxpayer admits, or higher than the Commissioner of Taxes claims, and will have no power to interfere with an assessment of normal income tax.” The Minister said that the committee would comprise three persons, with judicial and other competent minds. Mr Doidge (Opposition, Tauranga): “Are farmers involved?” The Minister: “Yes, everyone.” Mr Doidge: “But if he works harder to produce more?” The Minister: “He will get paid for his personal exertions.” Mr Nash also explained in reply to another question that there was provision to meet the cases of companies which had altered their capital, and those that had been newly formed.

♦ GOVERNMENT’S TAXATION PROPOSALS

STANDARD INCOME. The Commissioner is bound to find that sums in excess of the taxpayer’s standard income are excess profits. The standard income of an individual taxpayer is to be whichever of the following three sums he may select: (a) The sum of £5OO. (b) A sum (called the normal income) equal to the greatest amount of assessable income derived by the taxpayer during any one of the three income years ended respectively on March 31, 1937, 1938, and 1939. or to the average of the assessable income for those three years plus 30 per cent, whichever is the less. (c) A sum equal to 6 per cent of the value of the assets used in producing the income plus and allowance (not being less than £5OO or more than £1000) for the personal exertion of the taxpayer.

For a company taxpayer the standard income is whichever of the following two sums the company selects: — (a) A sum (called the normal income) equal to the greatest amount of assessable income derived by the company during any one of the three income years ended respectively on March 31, 1937, 1938 and 1939, or to the average of the assessable income for those three years plus 30 per cent, whichever is the less. (b) The sum which, after paying from it income tax computed at the basic rate (the 1940 rate without the 15 per cent war addition), represents 6 per cent of the value of the assets used in the production of the assessable income. Both with individuals and with companies the taxpayer is regarded as having selected for his standard the normal income basis (increased where necessary to the £5OO minimum for individuals) unless he notifies the Commissioner of Taxes to the contrary when the return of income is made. Special assessments may be made where the standard income cannot be assessed by the prescribed procedure. APPEALS TO COMMITTEE. If the Commissioner's finding is objected to. the committee will have to fix the excess profits at a sum equal to such, part of the assessable income as, in the opinion of the committee, exceeds the amount which the taxpayer might reasonably expect to derive under peacetime conditions of trade and industry, having regard to the nature of the business or occupation, the special circumstances of the case, and all other relevant considerations. .

In ascertaining of excess profits, the income tax payable on excess profits is taken as the amount by which the total income tax payable has been increased because the excess profits were received. This means that the income tax on the excess profits is taken as the difference between the income tax payable on the whole income and the amount of income tax that would have been payable if the standard income only had been received. Where the value of the assets, used in producing income is material in order to determine the standard of income, that value is taken as being the difference between the value at the end of the income year of the taxpayer’s assets and his liabilities. The assets and liabilities are to be determined by the Commissioner of Taxes. The provisions relating to the standard income and the valuation of assets govern only the making of the Commissioner's original computation of the amount of the excess profits. The Excess Profits Committee is not bound by these provisions, and if an objection to the Commissioner’s assessment is lodged, the committee may, after taking all the relevant circumstances into account, fix the amount of the excess profits. The committee, which is to consist of three persons appointed by the Governor-General, is to have the powers of a commission of inquiry and the proceedings are to be largely informal. Provision is made for the reduction of excess profits for any income year by the amount by which the income for any of the three former years fell short of the standard income for that year. Losses incurred in former years in respect of which the taxpayer would be entitled to an allowance in the computation of his taxable income foi income tax purposes are to be deducted from the assessable income before the amount of the excess profits is computed. BASIS OF ASSESSMENT. Where the Commissioner makes an assessment of excess profits tax, the assessments of income tax, social security charge, and national security tax are to be made in the usual way. These assessments will not be varied by any later alteration in the amount of the excess profits by the committee. The only amendment subsequent to the original assessment. except in cases where total income is found to have been incorrectly stated, will be any necessary adjustment to the assessment of excess profits tax, which will be payable at the same time as income tax. Incomes which are to be exempt from excess profits tax are as follows: (a) Income from royalties received from the grant of rights to cut standing timber, or to remove gravel or other minerals. Ib) Proprietary income derived by shareholders from proprietary companies, as the excess profit derived by the company itself is liable for this tax in the hands of the company. (c) Salaries and wages, except in cases where excessive salaries are paid by proprietary companies to the directors or shareholders or to their relatives.

(di The income of gold and petroleum mining companies.

The Bill was read a first time.