THE TAXATION COMMISSION.

Press, Volume LX, Issue 18128, 18 July 1924, Page 9

THE TAXATION COMMISSION.

JJEPORT TO the house conclusions and RECOMBIENDATIONS. "TAXATION SHOULD BE REDUCED/' (gpjctu, TO "TBZ PRESS.") ■ WELLINGTON, July 17.

report of the Royal Com?jsion on Taxation was laid on table of the House of ggpressntatives to-night. The Commiscomprised his Honour Mr Justice gjjn (chairman), Messrs W. D. Hunt, gbaiief Weston, James Begg, and 0. flbirfccliffe. (file Commission was set up to instigate and report on "the presont ifrfw ot land and income taxation in New Zealand in all its aspects, includ-jfag-piit scope, rates and incidence of ieyeral taxes, allowances and reassessment, appeal and collection, •ad prevention of evasion, and to reMl t what alterations of the law are aeefflsary or desirable, and what effect mch alterations would have on rates et tax it it were necessary to maintain the total yield of land and income tax I Mp<etively." ... • After detailing tho Commission's Msg&ry during the sittings held in tho TOrfons centres throughout the Dominjjß,- tbfr report states that in addition the • examination of a total of 52 Jesses, the Commission was supplied w the Land and Income Tax PepartJjnt wjtb a large number of speeiallyIgnared returns. The Commissioner ..Jjftecs, Mr-D. G. Clark, accompanied on its tour. The report proceeds:—

[ ; INCOME-TAX. | Jn eonnexioa with the income-tax, lis principal question before us was : is to the imposition of the graduated inpipe-tax on companies in the same f jjl-if,they were individuals. A - lgr£» number of witnesses expressed their*opinion on the subject. The majyrijy. of them condemned the present? jyatem of taxing companies as nnjtrtj'and as having the effect of preventing the Embarkation of large amounts of capital in new commercial undertakings. On the other hand a number of witnesses favoured the mainffnittmy 4)f the present system. It seems unnecessary for us to enter into any elahoratftdiscuasion' of the matter here. The' fcTgaiMnta against the present syste,n, are forth in the evidence of the witneMe&who condemned that sysin the report of the Taxation Committee of - 10<&j*!FhQ;arguinent8 in- favour of the pt«ent system-are-set forth in the ohority report of the same committee. W« the matter carefully, and the conclusion we have come to ii 'that the ideal graduated incomeuppn- the income from all eaei'in'dividual, and we re* fiscal policy of the ' jshbnld be shaped so as to ware t^e'abolition, as soon as reason- ; practicable, «of the present system ' taxation, We think it de(Wfe# t<rada that the present system ef ineoae taxation served a useful purthe war and immediate p«t-'wiiryperiod,: ; under the conditions IjmlpfQtaiUng, fulfilling, in-addition to ite- 3 funetion, the part of the Swliilrwweaa profits tax, and enabling «*mount of revenue to l»gtp#«i : with a minimum .of incorive#i«B«utghindividuals apd t|ie general return to moro normal witditliwi-oftrade and industry the iagsssjs|ea c# ithe • present system be* qw&WMrat,'And it. is advisable to as soon as practicable, to purei J4«idly correct system.

% . TAX. a great deal of evidence &l;sit4gftisst land-tax, The weight wua against both land-tax ;■ land-tax, and in favour ii- «*»#>aadQning both and substituting r<- Wlfftduated income-tax. 1 J "®.- CONCLUSIONS. c S! . u , are the conclusions at #Sch have arrived in -connexion .fthit}# questions raised before us : ? 4l|) -Lsnd.and income tax must bo i 1 pHpared together, as they dovetail 1 jjita- weather,; 'tW graduated. system of incbme ; tftis sound m principle and necessary ;i(M&.wier to'put the graduated p/operly into practice it is ■ that every individual's inall sources (income from ,W»p loans excepted), should together in one amount so graduated rate of tax that 4a: the whole income may be Tke graduated' system of income it necessary that no form e ?kc>ttld escape from it; otherPWWpw as between on© tax®®sPP*h4 another and indefensible re- > ar to creep in. with large incomes can paying the graduated tax tobl er * lße wou ' c ' apply to their ' investing in several s*t are each taxed separately, i' ffl 18 present system of gradu- > inconje of each company as : irw^ 6 * ncon *e, and charging tax ,' a , with .principle of a graduated inthat?? " Wron ß i n principle to vary to taxation according to the ' *mr«£ m** W^uc ' 1 it is derived. All k foj^Snf uld pay at the same rate. ; y-x. or differentiation in the Ita °i: tftX . E^ou J < i be according to the fc jflniL. .v 'ndividual's income and not ? from which it f Ift- ; ' onl J' exception should f lßxonn«xk*i ta ?- [ lee war i Btie VEL?* w . the State lias & contract... witnesses before us -l|fthe |i^rae q tlt ti ?s; ° f * hether or *l#UUm j?L t' ,e consumer. P« "npose&lJ** * «WMt one, and »* a definite IMshf'- jg?| WQjdence of the wisi JWics from m»

dustry to industry, and it is safe at least to say that- the view held by many ■witnesses that the tax is in every case passed on tc the consumer is not justified. , (<r) Before a change can be made from the present form of taxation of companies it will be necessary to ,have data as to the full income ot each individual in order that a close estimate can be made of the probable jie'd of any suggested scale of individual taxation. These data are not at present available. , (h) Income tax ovl the smailer individual incomes in New Zealand is on a low scale as compared with the rates in Great Britain and Australia., ft is only about 35 per cent, of the British rate and about 65 per cent, ot the Australian rate. (i) It is shown that or tne total individual assessable income of New Zealand less than 11 per cent, is held in incomes of over £2OOO a year and less than 1* per cent, in incomes of over £IO,OOO _ a year. Any system of income-tax will have to obtain the bulk of its return where the assessable income is, that is, from the incomes under £2OOO a year. The individual assessable income above mentioned does not include dividends from companies. The inclusion of these dividends would probably make some alterations in the proportions given above. (j) There is a point beyond which income tax upon individual incomes cannot be pushed without reducing its productiveness through capital leaving the country. A rate inducing an inflow of capital would produce a larger revenue to the State than otherwise would 1.-c obtained. . (ki Tli.. graduated system of income Las lmikes it necessary to aggregate income derived from land with other income for taxation purposes'. Exemptions consequent upon land tax stand in the way of this. For this and other reasons lane! tax. including graduated land tax, should as soon as possible be abolished. (1) The graduated land tax was originally designed to break up large estates. There is no evidence to show that it is required any longer for this I purpose, and there was much evidence showing that it is now preventing the development of large areas of land re- ' quiring considarabl© amount ot capital expenditure to break in. 'Hie graduated land tax applied to business premises is a serious handicap to trade and industrial enterprise, and serves no good purpose. (m) Income fr«m tax free war loans can neither be charged incometax nor be added to other income for the purpose of fixing; the graduated I rate on this ofiier income, as this would be breaking fhe contract entered into by the State when the loans were ' issued. j (rt) There is no undertaking on behalf of the State not to varv the rate of taxation on debentures, or any other form of income except income from tax free war loans. • The State is thu* free to i?x all other income from year to year at the same rate or at various rates as it pleases. (o) Alterations in the form come-tax on the lines of our conclusions will make it necessary to provide special machinery for taxing interests held in New Zealand by residents overseas, either as shareholders in companies or as debenture-holders. Companies in which these oversea interests ore held fall into two classes: (a) Those havijng tilieir headquarters _ (in New Zealand and (b) those having their headquarters outside New Zealund. Each will have to be dealt with separately. (p) We can find no reason why tenants of pastoral lands should not pay income-tax. They paid in pre-war days. They pay little or no land tax. (q) The changes in land and incometax we think necessary will take some time to bring about. It may not be found possible to make the whole of the change in one step, or in the immediate future. . , . , j j (r) The, changes indicated in land and income-tax-.would mean that land held in an idle and unproductive state would pay neither land nor income-tax. This would have to be provided for. (e) The question of double taxation of oversea investors requires further consideration. (t) The base on which income-tax revenue is raised should be made as broad as possible in order to lighten the weight of the tax. Every decision to free from tax, or tax lightly sewne source of income carries with it a decision .to tax 6ome other source at a. higher rate than would otherwise be necessary. (u) We can see no , adequate reason why State and public body trading and public utility concerns should ■ not _bo taxed as well as private enterprise. This would broaden the base _of the tax. Special provisions for taxing this source* of revenue would be necessary. (v) Tax paid company debentures are not on the same footing as regards taxation as tax deducted debentures. (w) Land Tax presses heavily on land used for growing timber. (x) Death duties are equivalent to an addition to income-tax, and it is to be observed that these are much heaivier on moderate fortunes in New Zealand than on similar fortunes in Great Britain. These duties act also as a check on the aggregation of land. (y) The foregoing conclusions have dealt with the incidence of taxation, but we wish to record our view that the weight "of taxation is mpst important, alul that it is essential in the interests of the future prosperity of the Dominion that the weight of taxation should be reduced as rapidly as possible.

RECOMMENDATIONS. The following are the recommendations we make in connexion with the foregoing conclusions:—* '(a) That legislation be passed .instructing and empowering the Commissioner of Taxes whan obtaining future income-tax returns to compel the individual to include in his return tho whole of his income from all sources, specifying tho amount from each, source separately. (b) When the data asked-for under (a) is obtained and compiled (which will be towards the end of 1925) tho question whether or not a complete change can be made from the present system of. taxing companies direct as individuals to the system of taxing every individual upon his total income from all sources (excepting only tax free war loans) should bo cajefully considered. If a complete change is found difficult or impracticable, then a beginning should be made by taxing individuals in respect of the dividends received by them from companies, and supplementing tho revenue obtained in this way by a moderate flat rate on all the profits of companies. (c) That the maximum rate of the graduated tax should first be fixed $b a level that will not cause an outflow of capital from Now Zealand. It would be advantageous Jto fix a rate which would cause an infeow of capital. Tins rate must be adjusted from year to year according to financial requirements and circumstances both within and without New Zealand. (d) Having fixed tho maximum rate the graduation downwards should bo on a scalo that will enable the required sum to be raised, such graduation to be made in such a way a? not to be oppressive on the taxpayer of small means. (e) The rate upon undivided profits of companies should be approximately half the imtximum rate. (f) If it is impossible without undue hardship to obtain the neoeasaiy re-

venue from the sources already mentioned, then the revenue from thes® sources should be supplemented by a moderate flat tax on companies, assessed upon their total profits. This supplementary tax should be in addition ■to the. tax on their undivided profits, (e) Companies registered outside New Zealand should be taxed on their total incomes derived from New- Zealand a.t the rate .at which companies registered in New Zealand are assessed oai their undivided profits and should also be liable in respect of such incomes for any flat rate company taz. (h) Oversea shareholders and debenture holders in companies registered in New Zealand/ should have their t<vx stopped at the source at the maximum rate.. Tho companies interested should i>e deemed agents for their oversea shareholders and debenture holders, and should be responsible for the payment of the tax. Oversea shareholders and debenture holders should have tho right to apply for and obtain a rebate of the difference between the maximum rate chai-ged and the rate that would apply to the whole of their income derived from New Zealand. No exemptions should bo allowed to oversea investors in New Zealand (i) Tho incomes of pastoral tenants should be made subject to tax, and this should bo done immediately so that the incomes for the year ending March 31st, 1924, will not be allowed to escape taxation. (j) That the present graduated land tax should be abolished, and incometax should be paid in respect of income from land as part of the taxpayer's income. (k) That any loss of revenue brought about by the adoption of the last recommendation should be made up by a fl;i.t rate of land ta.? on all unimproved land values over £2OOO with a. rate below £2OOO of two-tliirds of the rate above £2OOO. Present £SOO and mortgage exemptions should be continued. It is thought that id in the £ up to £2OOO and Jd in tho £ beyond that amount will produce the sum at present required. In assessing incometax no exemption should be allowed in respect of this land tax. (1) 71 ie flat rate tax on companies referred to in paragraph (f) and the Hat rate land tax referred to in paragraph (k) should both be regarded as temporary texes to be reduced and ultimately abolished as soon as the national finances permit. (m) In the meantime, and until the individual system of income-tax lias been brought into operation, the incomes of individuals from all sources (except tax free war loans) should be aggregated in order to fix the rate that should apply to that portion of tlie taxpayer's income that is taxable in his own hands. In fixing the amount of his tax the amount of tax paid at the source in connexion with liis other investments should be taken into account, but no rebates should be made if the total amount paid, after charging the amount taxable in the taxpayer's own hands at the rate that would apply to that amount only, comes to more than tho amount that the tax would have been if the whole income had been taxed in the hands of the taxpayer. (n) That when these land tax recommendations are put into effect, the Commissioner of Taxes should be empowered to assess a net income at five per cent, on the capital value of any land that he considers to be either lying idle or not being utilised so aa to produce a reasonable income. (o) That the question of double taxation be further considered and arrangements made that will result in British capital invested in New Zealand being placed in a position at least as favourable as in Australia, provided such arrangement does not put British inv-scors in New Zealand on a better footing than New Zealand investors.

(n) Tiiat in any event the favoured position of prblit body and company debentures, as far as income-tax is concerned. should be abolished immediately. (q)"nab if the graduated land tax is not abolished, relief should be given in connexion with the present graduated land tax payable on business premises. (r) That State and public body trading and public utility concerns should bo charged income and land tax to the same extent as private enterprises, and that, for the purposes of taxation, their borrowed capital should be treated in {he same way 'as borrowed capital in private enterprise is treated. (s) That tax paid company debentures sTiould bo put on the same footing as tax deducted company debentures. ("t} TTiat r<MK>f from land tax be given to land devoted to plantations of timber trees and areas not exceeding 25 acrps of native bush. (n) That a more reasonable allowance For depreciation of tramways, workers' cottages, and other wasting assets b« allowed in-the case Of 6awmilling and mining ventures. Report to be Discussed Later. In laying the report on the table, the Prime Minister said an opportunity for discussion would be given later on. The evidence would not be printed for some time.