Company P.A.Y.E Tax Not Wanted

Press, Volume CVI, Issue 31307, 1 March 1967, Page 14

Company P.A.Y.E Tax Not Wanted

Because a company did not die like an individual, but continued to exist as an entity, there was not the same reason for applying pay-as-you-earn taxation to companies to meet a sudden onrush of tax liabilities, the Asso* dated Chambers of Com* merce said to the Ross Taxation Review Committee.

It recommended that the system be abolished for companies and that all companies be assessed on the same basis.

“The inclusion of companies under P.A.Y.E. at the time was really insupportable, and also introduced a further and quite unnecessary measure of complication into the scheme,” the association said.

“The basic conception of P.A.Y.E. was that it would assist the general taxpayer, by enabliing him to meet his taxation obligations whilst his income was being earned, instead of having to effect payment in a subsequent year after the particular income involved had already been expended and when the level of his current income might, conceivably, be much lower. “The situation previously arising on the death of a taxpayer was also an important element in the scheme, because prior to the introduction of P.A.Y.E. it was a common experience to find that two years’ taxation had accrued as due for payment at the date of death. None of these considerations, however, has any real application in the case of a company, which is a continuing entity and does not die in the way that an individual does.

“So far as the actual payment of taxation is concerned, on the other hand, a company necessarily makes proper provision for the due payment of tax, by appropriating a sufficient amount from the profits of the particular year involved, before arriving at the amount available for distribution by way of dividends. In such circumstances, of course, the payment of the tax in a subsequent year does not normally confront a company with the kind of problem which an individual has to face.” The notion that an individual might be tempted to con-

vert his business into a company merely to obtain a benefit in relation to the deferment of taxation under P.A.Y.E. entirely over-looked the fact, it was contended, that in every such case one of the first things such a person did after forming his company was to fix an adequate amount to cover his own remuneration. Such remuneration remained in the field of P.A.Y.E. and consequently, did not achieve anything by the way of deferment.

“The really important circumstance was that P.A.Y.E. undoubtedly was introduced primarily as a means of assisting individual taxpayers with the payment of their taxation. In fact, the Government of the day openly hailed the introduction of the scheme at the time as an election winner, and the circumstances that P.A.Y.E. procedure would also result in the earlier payment of taxation was undoubtedly a mere by-product of the scheme —however useful it might be regarded by the Government—and certainly had nothing to do with the avowed reason for its introduction. “From the standpoint of companies affected, the existing situation is extremely inequitable, because subsist-

ing companies undoubtedly have a clear competitive advantage in paying their taxation more than 12 months later than P.A.Y.E. companies. Moreover, the position is particularly unsatisfactory for subsisting companies which may wish to segregate their affairs under subsidiary companies, or where an existing group may be desirous of adding new subsidiaries for the segregation of an existing operation; because the necessity of providing funds to meet the earlier demand for taxation in respect of the operations of the subsidiary companies concerned introduces a new cost factor, namely, interest on the additional funds required. It is also extremely inconvenient to have new subsidiaries—which are P.A.Y.E. companies —subjected to tax on a basis which is different from that of the parent company. The association holds that there is sound justification for excluding all companies from the operation of the P.A.Y.E. provisions. In particular, it is submitted that there is a very strong ease for permitting subsidiary companies of subsisting companies to be taxed on the same basis as the parent company, notwithstanding that the subsidiary may have been incorporated subsequent to July 26, 1957.