B.- fi.

58

[r. finch.

between classes of shareholders, and this entirely due; to that fact that a radical change-over would be attempteel in the. incidence of taxation. Shares have been issued under various names —ordinary, preference, founders, bonus, deferred, anel so on, and the name in itself is practically no positive guide as to the varying conditions under which the shares are actually issued. Another practical difficulty that must be' faced weiukl be that of company profits available- for distribution at the date of the change-over. Woulel a, distribution erf these; profits carry an additional clividend-tax, thus paying tax twice, or how coulei they be so dealt with as to overcome this ? These profits may be called ■Balance forward in Profit anel Loss Account; Reserves ; Reserve' Funds ; Dividend Equalization Account; and so en ; and. the subsequent distribution of dividend might take only part of these anel make up the balance from subsequently earned profits. Then, again, these reserves might have been created by premiums on share issues, and so em : woulel these have to pay income-tax ? A company, instcael of paying out dividends, might distribute bonus shares. Would these pay incometax ? A company might go into liquidation and the liquidator distribute the surplus assets by paying what are actually dividends on shares whie:h might really be' the result of revenue profits, capital profits, or return erf capital. What weiukl be: the position as tei income-tax ? To sum up the change-over, even if a fairly satisfactory general Act were passed and brought into force, the Commissioner woulel be immediately faced with a fresh lot of loopholes and opportunities for avoidance of tax, fresh injustices that would require adjustment, and so on, whereas now he has a fairly clear-cut method which is familiar to the taxpayers, and he has succeeded by his various amending Acts in closing up most of the openings through which the elusive taxpayer could escape him. Ido not propose to enlarge: on these practical difficulties, because, any one, by a study of the subject, could put doubtful cases almost indefinitely before you ; but I say this : that the proper time to tax profits is when they are made anel not, when they are distributed. Another point for consideration is this : the: change-over weiukl necessarily materially affect the market price of company shares, causing capital losses to some holders anel capital profits to others. This factor alone is one which woulel require very careful consideration on the part of the authorities if the alteration were contemplated. If I have not made myself clear in any of the above statements I would be pleased to answer any questions eioncerning them. In conclusion, 1 shoulel like tei take, this opportunity of paying a tribute to tho way in which the Land and Income Tax Department is being run. Without exception, in all tho transactions I have had with either Wellington or the local Inspectors I have received fair treatment, an attentive hearing, and the utmost assistance ; and all the officers that 1 have come in contact with are, in my opinion, men of outstanding ability, not only in the: carrying-out of their duties, but in retaining an open mind. Also the very wide discretionary powers which tho Government ' has given to the Commissioner have proved to have been placed in safe hands. I wish to eleal now briefly with one or two matters that I would urge shoulel be altercel to make the incidence of taxation more equitable. 1. Abolition of land-tax as a means of raising annual revenue and putting on a special tax for the purpose only of preventing under-aggregation of land, and to burst up any large holdings that can profitably be subdivided. As I understand it, this was the original intention in the introduction of land-tax, and its incidence is such that it acts inequitably when considered as an annual charge. Necessarily a land-tax must be imposed to take effect en a certain day and hour —at present it is 12 o'clock noon on the 31st March in each year. The charge cannot be, subject to apportionment in any way, and it works out in practice thus : If a man buys land on the 30th March he pays land-tax on it, but if his purchase is not made until Ist April he escapes tax. This is clearly inequitable, anel its nature is such that it is practically impossible to avoid it, more, particularly as a reasonable method of apportionment of a graduated land-tax has yet to be' suggested. 2. Inclusion as a taxable profit of any profit maele on the sale erf land purchased within, say, twelve months of such sale. This applies, to my mind, particularly as it affects farm property. This speculation in farms, stocking up to more than the carrying-capacity and then selling out at a profit is essentially bael from a production point of vie;w. The class of farmer that is wanted is one who intends to make his profit by farming, and not by selling his farm, anel under the present method of taxation the farm speculator is encouraged, as his profit is not taxed. Moreover, each sale of the: farm at a profit makes it more difficult for the: ultimate' holder to farm profitably, as his overhead charges in the way of interest are so materially increased. 3. Reimposing erf tax on income derived from land, and taxation of this form of income exactly as in the case of other Income. I cannot see any reason for the exemption eif any annual form of income from an annual income-tax, and now that losses are permitted to be carried forward sueii taxation is absolutely sound and equitable even in the case of a fluctuating business such as farming. As various returns erf ine:ome have been passing through my hands, I have been more: and more impressed with the equity of income-tax on farms as opposed to land-tax. During the slump period, while large losses were being made, the' farmer was still called on to pay his land-tax, and sometimes it was extremely difficult for him to do so. To-day when he; (more particularly the sheep-farmer) is eleiing well the amount he has to pay in land-tax is indefinitely too little when considered in comparison with his profit. Income-tax has this definite element of justice: :if you make profits yem pay tax to the State, ; if you make: no profits you pay no tax. 4. Taxation of all interest on debentures on the same basis as other interest. I cannot see why any differentiation should be made between debenture, and other interest in the; way it is at present. There does not seem to be any valiel reason for it. These variations in methods of assessment permit of efforts being successfully made by some taxpayers to avoid paying their fair share's of tax to the' State, anel this should, as far as possible, be prevented. 5. Donations made by business firms should be permitted as deductions from income for the purposes of assessment. These donations are in a large measure a, form of expense, in some cases as a matter of business policy, in some as an advertisement, anel jn some from a sense of liberality.