INCIDENCE OF TAXATION

Dominion, Volume 16, Issue 174, 11 April 1923, Page 6

INCIDENCE OF TAXATION

"PRESENT SYSTEM LOGICAL AND EQUITABLE” MR. HUNT’S VIEWS CHALLENGED MR. G. SHIRTCLIFFE’S REJOINDER (HI.) Claiming that the present system of company taxation is logical and equitable, and that Mr. Hunt’s contentions savour of special pleading on behalf of one section of the business community, Mr. Ceorre shirtcliffe, also a member of the Taxation Committee, affirms that money is still available for land securities.

“As a member of the Taxation Committee, who, along with Messrs. W Barion, B. Tripp, C. J. Ward, and T S.. Weston, subscribed his name to the minority report, dissenting from the majority recommendation that the incidence of company taxation should be drastically altered. I feel that I cannot let Mr. W. D. Hunt’s views as expressed in Tub Dominion of April 9, pass without comment,” said Mr. George Shirtcliffe yesterday. "Mr. L. A. Rutherford, in his letter to The Dominion, takes for granted that lending companies ‘have to pay 7s. 4d. upon every £1 of interest derived from money invested in land.’ Mr. Hunt (no doubt inadvertently) rather confirms this assumption when he states that ‘large investment companies have to pay 7s. 4d. in the pound on the interest earned bythem.’ Everyone should know that the income tax is paid not on earnings, hut on tho annual net profit, plus some items of expenditure that are not deductible in. the return of income. This, of course, is obvious to Mr. Hunt, hut tnay not be so apnarent to people who are not so directly concerned in the payment of taxation, and the method of its calculation.

STOCK AND STATION COMPANIES

"An examination of the balancesheets of the principal largo stock and station companies would show that a large proportion of their lendings is offset by their borrowings from depositors and debenture holders, the interest cost of which is deducted in their income tax return. Consequently they are called upon to pay tax, not on the whole, but only on a much smaller proportion of their interest earnings. For example, assume that a large lending and trading company has borrowed by way of deposits or debentures £1,000.000, at 5J per cent., which it has lent out at 7 per cent., the gross profit would amount to £15,000. from which would be deducted a proportional share of the departmental and overhead charges, say £5000.. leaving a net profit of £lO.OOO, on which the present tax would be, roughly, £4OOO, or 2-sths per cent., so that the tax for interest earned would be 6 3-5 per cent. "I am therefore unable to follow Mr Hunt’s calculation that, in order to i;<>t 54 per cent, a trader must, charge £8 12s. 6d. per cent. I have before me the latest balance-sheets of four companies, whose sole business is the lending on mortgage of its shareholders’ and depositors' money, and I know that, as regards one of these companies, it has no mortgages on the books nt a higher rate than 7 per cent., and many at less than that; and I have no doubt that the same can be said of the other companies whose figures I quote and tabulate them as follows •. —

“Tlie State Advances to Settlers Department is lending money at 4} per cent, interest, paying full income tax and showing a profit. WHY CHARGE HIGH INTEREST? “I? those results can bo obtained by companies that Have no consequential earnings other than interest, why should it be necessary for companies that earn good commission profits from their borrowing clients, on the sale of their stock and other produce, with further good general trading profits, to charge £8 12s. 6d. per cent, interest? As a matter of fact, is it not the case that the stock and station companies, when lending money to clients, look for and obtain not only interest but large commission earnings from them ? . “If there is at present a disinclination on tho part of lenders to invest their resources in mortgages, is it not because land values are in many cases still so inflated, and borrowers require to borrow to-o large a proportion of such values, that lenders are naturally chi- of accepting the risks involved 9 I venture to think that money is still available for lending <>n mortgage that carry a reasonably safe valuation, un to the customary 60 per cent, to 75 ner cent, of such values, and that such loans can be obtained at 6} to 7 per cent. One can rendilv understand the natural desire of lending companies, especially those that have, during the mad rush of recent years, raised large blocks of working capital bv preference shares or debentures, carrying 61 per cent, to 8 per cent, interest, to obtain a reduction in the present scale of taxation. and I hone that the time is not distant when the company rate will be reduced to a maximum of ss. in the £l, ns unanimously recommended hr flio Taxation Comn if tee. But to argue that tho tax should bo wholly or partially shifted from +l;=* shoulders nf companies to those of the shareholders, in view of tho injustice that would inevitably ensue, savours, I think, too much of. special pleading on behalf of one. section of tho business community. I venture to suggest that those interested in this question should peruse tho minority as well as the majority report of the Taxation Committee, as there are undoubtedly two points of view that call for careful thought Personally, I have not yet been able to change mv opinion that tho present system is Loth lon-ionl nnr] equitable.” [The fourth article of the series will be published to-morrow.]

A B 0 D £ £ £ Capital 62.000 60,000 125,000 31.000 Deposits 140,000 276.000 328,000 78.000 100/01 Mortgages ... 173,000 J68.00O 464.000 Inc. tax 480 4,514 4,799 289 Dividend p.c. 6 Added to re5 6i 6 serve, etc. 509 4,500 4,288 112