Investment money from tax on bills

Press, Volume CXIV, Issue 33675, 26 October 1974, Page 1

Investment money from tax on bills

(By

ADRIAN BROKKING.

our commercial editor)

The taxing of the income from commercial bills may channel a little more money into other forms of investment.

Most of the money put in the bills market 1 by individuals would normally have been used to buy debentures or shares. “There is no doubt that the opportunity to invest in them ’ has distorted the investment market to quite a degree,” said the Minister of Finance (Mr Tizard) when announcing in Parliament that the Inland Revenue Department i was examining this question. The commercial bills, market has been a popular; investment in the last two years; in August sls2m had been invested in it, more than twice the amount the year before. Because of the fall in the sharemarket, and the lack of business there, many sharebrokers had become quite active as bill brokers. Instruction to pay A commercial bill, or bill of exchange, is an instate-! tion to pay, which is negotiable and has legal status. It I must comply with the re-! quirements of the Bills of Exchange Act, 1908. Essentially, it is an, instruction by one party (the drawer of the bill) to a second party (the acceptor) to pay a certain amount of money — for consideration already received — at some fixed future date. It is,, therefore, similar to a postdated cheque. The holder of the bill may! . sell the bill, but as the pay-: ment will be made at a future j date — seldom more than 180 days away — the buyer' will pay less than face value.' There is an element of interest involved, which, because it is deducted from the price to be paid for the! bill, is called discount. i This discount is part of the income of the institutions trading in bills as a matter of course, such as the trad- ! ing banks. These institutions I pay tax on their income. I But in the hands of indi- ■ viduals, the discount has so t | far been regarded as a form l'of capital gain, and has been . I tax-free. ‘I As the return obtainable i! lately has ranged from 12 per cent on very good bills to as ; i much as 15 per cent on some >;of the riskier ones, it may I easily be understood that this . | form of investment has (become very popular.

1 do not think that the Government looks upon this measure as a revenueproducing one; rather it is interested in correcting any distortion in the money markets. If the Government were concerned about the taxation angle, it should also examine

other forms of investment! held by individuals whictl may possess this discount element. The discounting ol mortgages, and the discount element in purchases of Gov< ernment stock, are just a few which spring to mind.