RETENTION TAX

Press, Volume XCVII, Issue 28629, 4 July 1958, Page 7

RETENTION TAX

Amendment To Be Urged

The Government’s intentions to tax companies’ undistributed profits and dividends to shareholders were criticised at a meeting of the council of the Canterbury Chamber of Commerce last evening by the vice-president (Mr J. R. Smith).

Describing the Budget as a “Rehaboam’s Budget” he commented that King Rehaboam had told his subjects that his predecessor had chastised them with cords, but that he would chastise them with scorpions.

‘‘The retention tax smacks of punishment,” said Mr Smith. It was designed to force businessmen to take a course of action irrespective of its soundness or prudence by punishing them if they did not do what the Government thought they should do. It was a bad tax, he said. Its calculated effect must be to increase overdrafts and reduce the best possible saving—the ploughing back of profits into a business. “It is a penalty applied to those business people who are trying to do their best for New Zealand and incidentally the Government, by expanding the operations—particularly in the industrial field to fill the gap created by reduced imports.” Mr Smith said. “They must have additional capital to buy equipment and raw materials for extra production and if they forgo profits to do this they are to be more heavily taxed,” he said. Definition in Act For the dividend tax to be applied with fairness there would need to be a re-definition of dividends for income tax purposes. At present distributions to shareholders of a capital nature or containing a proportion of capital were treated as dividends because they were so defined in the act.

“The justification for this was always said to be that in fact they were not taxed at all but were merely used for arriving at the rate,” said Mr Smith. “Now that dividends are to be taxed it is a horse of a different colour.” A revision of the whole approach to the definition of dividends and taxation of companies was required to do justice between one taxpayer and another and to maintain the investment of capital in New Zealand companies, said Mr Smith. The council decided to ask the Associated Chambers of Commerce to urge the Minister of Finance (Mr Nordmeyer) to amend the income tax law’s in regard to retention and dividends tax.