INCOME TAX

Dominion, Volume 36, Issue 157, 30 March 1943, Page 4

INCOME TAX

Method Of Computation

Held Unfair

AMENDMENT URGED

The hope that, before the resumption of Parliament in May, the Government will frame legislative, amendments to remove injustices caused by the new basis of computation for income tax, is’ expressed in a statement issued by the Associated Chambers of Commerce of New Zealand. The offending provision, says the statement, is contained in section 5 of the Finance Act, 4942, which niters the for; mer basis for computing the amount of income tax payable by taxpayers who have derived both assessable and nonassessable income. 21 number of cases have been brought to the notice of. the Associated Chambers where the salary or other earned income of taxpayers affected is liable —in terms of the new legislation—for a combined rate of income tax, social security charge, and national security tax, equal to 18/in the £. This means that in these cases only 10 per cent, of the salary earned will remain in the hands of the taxpayer as a reward for his personal exertion. Such a position is obviously calculated seriously to discourage private enterprise and effort. In many instances company directors find themselves in a position where it is not worth their while to draw any remuneration for full-time services given. . It is true, of course, the statement continues, that the maximum effective rate of 18/- in the £ applies only in those cases (in relation to earned income) where the taxpayer’s non-assessable income amounts to, or exceeds, £3 <O9, or where (in relation to unearned income) his non-assessable income amounts to. or exceeds, £2500. On the other hand, however the anomalous principle involved operates in respect of all taxpayers who derive both taxable and non-assessable income, the only qualification being that 'the weight of the burden imposed bears with increasing severity as the maximum rate levels—£37oo for earned income and £2500 for unearned income—are approached. Examples Given.

As an example, if a man’s non-assess-able income is £lop and his taxable or earned income is £lOO, the rate of tax on the old basis is shown in the statement as 3/6 and on the new basis as 3/8. With a non-assessable income pt £6OO and a taxable income of £lOO the old rate is quoted as 4/4 and on the new basis as 5/4. For a man with a nonassessable income of £3600 and an earned income of £lOO the rate of tax on the old basis ss given as 9/4 and on the jiew basis as 15/4, ' To illustrate how the altered system operates the Associated Chambers give a number of examples. They say that if for instance, a man has a non-assess-able income of £lOOO the income tax payable is nil. If, however, his income was made up of £5OO earned and £ooo, say, from dividends, he would pay the new method of assessment whereas the income tax payable on last year’s basis of assessment, but with the increased war tax rate of 33 1-3 per cent, was £l2O/16/8. an increase of ±2O/16/8. Another case cited is that of a man with an earned income of £2OOO and an income of £2OOO from dividends. His income tax on last year’s basis, but with the increased war tax of 331-3 per cent, added, is given as £979/11/8, and on the new basis as £1309/3/4. Apart from the fact that the non-assess-able income involved (insofar as it represents company dividends) will, in most cases, already have been subjected to the maximum rates of company taxation (14/0 2-3 in the £1), the statement continues, the incidence of the new method of assessment is illogical, and certainly does not fit in with the Government s contention that those who receive non-assess-able income are better able to bear the weight of additional taxation. Taxed Twice. On the other hand, however, the liability of those persons ■ whose income is wholly non-assessable has not been in any way affected, notwithstanding that the amount of their income—and therefore their capacity to pay—is the same as that of the taxpayers whose liability has been substantially increased. But the vital consideration is that the non-assessable income in question lias already been subjected to its full measure of taxation in the hands of the companies concernedin most cases at maximum rates—and it is entirely wrong in principle that such income should again be subjected to taxation in the hands of shareholders. It is claimed that there is no argument that can be put forward in justification of the differentiation that is made by the present taxation provisions between different people. It is not to be denied that war conditions require heavy taxation, but there is a world of difference between the weight of taxation and its incidence. What is of national concern is that the incidence of taxation, even when the weight of it has to ibe heavy, should be as equitable as possible, and should not discourage individual effort and national production. , The new basis of taxation has a crippling effect on business people in particular. ’ The bulk of these are men who are experienced m trade, and whose services arc valuable. Men retired from active business and who recommence activities solclv on account of the war, will be taxed up'to 18/- in the £, so that, a man earning £2009 is left with £266, which is not much more than the allowance under the Social Security scheme to people who are unable to work at all. It seems clear, the statement concludes, that the full effect of the altered basis of assessment was not fully understood by members of Parliament when the Act was passed by the Legislature last year. A number of them have since expressed their surprise at the effect of the legislation.