INCOME TAX

Dominion, Volume 11, Issue 57, 30 November 1917, Page 6

INCOME TAX

THE POSITION OF COMPANIES

INJUSTICE DONE TO SHAREHOLDERS

The incidence of taxation was among tho matters discussed yesterday by the conference of the Associated Chamhers of Commorco. The following remits were on the- order paper:—

"(a) That tho present system cf troa.ting companies as individual taxpayers and of taxing the incomes of companies on a graduated scale, regardless of the fact that the capital employed in earning that income reprosonts the contributions of numbers ot shareholders, is inflicting injustice on many shareholders in companies, and if continued must restrict the investment of capital in commercial and industrial enterprises.

"(b) That if graduated or progessiv6 taxation on incomes is continued, the tax: should ho levied on incomes from all sources of taxpayers as individuals (including their interest as shareholders, in tho profits of companies).

"(c) That the Government be requested to consent to the association with officers of the Land and Income Tax Department of two or three business men expert in financial matters and in tho affairs of companies, with the object in view of the commiesion so constituted investigating the system of land and income taxation in New Zeal?'" 1 and recommending before next session of Parliament a more equitable system.

"That&in the event of the Government refusing to set up a commission to repor'.,on taxation, the executive of this association appoint a committee to inquire into the taxation system, and to make recommendations to removo existing anomalies. (It is realised that no investigation could bt complete without acness to data at present only in po.iw;ion of the Tax Department.)"— (Wellington.) "(a) That the Government bo rrcommendod to forthwith aiwoint a Roya) Commission to innuiro into tho pronei principles and incidence of all taxation in New Zealand, and to make recommendations as to all the taxes, whether direct or indirect, to lie jnviod for the year commencing April 1, 1918.

"(b) That the present statutory moans of deciding compulsory liability to contribute to war loans are unsound, in that they baso the liability to contribute on the taxes pavable foi a givon year, thus accentuating any inequity, anomaly, disability, or evasion in the taxpayer's taxation for thnt year, and also bringing too short a period under Toview, while they fail to consider the taxpayer's capital and present responsibilities. That contributions to war loans should bo in nroportion to ability to contribute. _ This depends on capital and income in relation to tho lender's pr«ent responsibilities. That any necessary compulsion should be exercised on the order only of an authority such as a Judge of the Supreme Court or a Royal Commission appointed to decide compulsory liability in each case."—(Canterbury.) "That in tho opinion of this conferenco the existing system of taxing the profits of joint stock companies is ineqnitablo and wrong in principle, because it may, and in cases it does, compel small shareholders, who would otherwise be exempt from payment (,i income tax, to pay the full rate. As an alternative, it is suggested that such companies should bo taxed only upon their undivided profits, and thai individual shareholders should "be nocountable for the tax (if any is payable} upon their dividends."—(Taranaki.) "(a) That all profit-earning Departments of. the State, in casos where the whole of the profits are not paid into tho Consolidated Fund, or where they are not already liable for innir'e tax and land tax, should be made liable for income tax and land tax in tliG same manner and under tho same conditions as private businesses are mad 6 liable.

"(1>) That nil local authorities sVonVi be made liable for income tax and land tax in respe-t of their commercial activities."— (Canterbury.) Mr. F. W. Manton (Wellington), in the course of some, references to tht income tax, snid it was unnecessary again to stress the unfortunate position in which shareholders in many comnanies wero placed. The, Ministei of Finance had admitted that the system of the taxation of companies gave, rise to anomalies, hut he lind indicated that be did not feel justified in alterin" the system of taxation during the war period. The present system was, from the Taxation Department's point of view, possibly the simplest that could ho devised. On the other liana it was beyond nil doubt tint grave injustice was being inflicted on many shareholders in companies, and it was, inevitable that if this system of taxation was to be continupd, there would he restriction in the investment of capital _ in oninmpTe.isl ai, d industrial enterprises. The capital of a company was made up of the contributions of many individuals, and each had an interest in the profits of the company proportionate to his interest in the capital;. a shareholder's interest in the, profits of a company was not necessarily represented by the dividend he received. If a company had a large capital it was inevitable that even to make a comparatively small return on the capital invested, largo profits must be made. It was tlio taxing of incomes of companies on a heavy graduated scale simply because they were large incomes, and irrespective of the interests of tho shareholders, that was the cause of the injustice. The Legislature had, in effect, admitted tho injustice, as Section 37 of the Finance Act, 1017, permitted of rebate to shareholders in certain cases. But this section'of the Act was so restricted in its scope that it was not difficult to foresee but few applications for refunds. After giving details of the systems of taxation adopted in other countries. Mr. Manton said that the proposal of tbe Wellington Chamber was that the Government should be requested to consent to the association of two or threo business men with officers of the Land and Income Tax Department, to make investigation, and if possible recommend a more equitable system before next session of Parliament. "The Department," he said, "is the only body possessed of the necessary data, or in a position to acquire the information necessary ■ to estimate the effect of any proposed alteration in system. 'l<he Departmental officers are exports on taxation, and on a board of inquiry, such as is suggested, t.heir experience and knowledge, together with that of two or throe commercial men, sTimild result, in a system being evolved which will be .more equitable and yet provide tho necessary revenue. A compromise has boon suggested, and that is that companies should he tasod on their assessable incomes in the, following niiiuner: —That first a fair return on the capital in tho company should be taxed at i> flat rate, nnd that the surplus profits should bo subject to Graduated taxation. 'With such a svstem the capital in a company should be deemed tn between ifa assets and liabilities; that is. iis undistributed iW'ls and p>ser"P.« would be considered as cnnital. and the perccntae-p nf m-nfit to bo al-lowed-should be fixed with due regard to the risk to the oapifc:>l involved. There is miieli to commend in this proposal. It the merit "f being comparatively s'mnlo; it, would . bo economical in collection: incomes ' wonl'l be taxed at the source." In tho course of discussion Mr. J. A.

Young, M.1 , . (Hamilton) said that it clearly was not possiblo for the Govornment to mako fine adjustments at short notice. The war had mado it necessary to raise huge sums of money by taxation for war purposes, and the Government had to adopt a system that could apply generally, though it might be inequitable in special cases Mr. C. H. Edwards (Napier) said that the now taxation had caused the shares' of some companies to decline 50 per cent, in value. The remits were adopted.