COMPANY TAXATION

Evening Post, Volume CII, Issue 5, 6 July 1921, Page 9

COMPANY TAXATION

A UNITED PROTEST INCIDENCE OF INCOME TAX. "TAX THE INDIVIDUAL." ' A lucidly-written protest has been madia in pamphlet form. It is endorsed by eighteen well-known New Zealand stock and station companies. Although it ia mainly concerned with the results of the incidence of New Zealand income tax as affecting farmers, it shows how all other enterprises may be very seriously affected, if not destroyedl, by the present system of income taxation. In brief, the argument of the pamphlet is for taxation of _ the individual, shareholder, or otherwise—not the company. To quote from the concluding paragraph :— The motteT is urgent. It requires immediate attention. The present taxation of companies in New Zealand is the most grinding and crushing in tho world. The evil effects if the system are already abroad in the land, and will be felt with increasing weight the 'longer a change to fair and equitable methods is delayed. ■ Reference- is made in tbe\opening to tho deputation of representatives of stock « and station companies, and farmers' cooperative companies, which waited on the Prime Minister in January last, andl pointed out to him the inevitable results of income taxation, which, it insisted, was excessive; but which resulted in no 1 relief of the nature asked foi being afforded. The pamphlet is the outcome of the need felt by the deputation for the whole country knowing and appreciating the position as it appeared, and still appears, to its members. ' SMALL INVESTOR PAYS. Explanation is given of,the differences between tho English income tax and the income tax of the Commonwealth and State in respect to companies. It is that "In New Zealand companies are taxed direct, the tax being graduated in proportion to the income. The maximum is reached at 8s 9 3-5 din the £ on an income of £10,000 a year This" means that practically all large companies pay on.the maximum rate. When they get their dividends from companies, shareholders do not have to pay any further tax, but they get no rebate allowed them of any kind, except where their income is below £400 and their dividend less than 6 per cent, on the amount paid up on their shares, when they get a small allowance. The result is that thr small investor in a company in New Zealand; pays the maximum graduated rate fixedi for the largest income "In Great Britain a man can invest his, savings _ in anything he likes, including companies, and he is taxed on his income as' an individtial in proportion to his means. Tho same- applies in Australia. In New Zealand a man can invest his savings in any form of investment that he likes—exoept shares in companies— and he is taxed as an individual in proportion to his means, but the moment he invests in a joint stock company his tax is graduated in proportion to the total income of the company, and not in proportion to his own total income. This means that if he investr in shares in a large company he is taxed on his income op the highest graduated rate fix«d for the millionaire." EFFECTS ON THE FARMER. Comparing New Zealand with England, it is shown that in the former there is not only compulsory snbscrip-r tion|to be made to loans; but, when the net income of a company exceeds £10,-, 000, "the State is the predominant partner, and takes halt the profits in hard cH-sh for land, and income tax, while the Mmpaniea hare to pay all their ldesca themselves out of the remainder of their profits" In England there is "a fair adjustment'of losses against piofits." ' "Let us consider the effects of this taxation in New Zealand. We will consider it first from the farmers' point of view. We tliink it is generally admitted that New Zealand is chiefly.an agricultural and pastoral country, and that anything that affects the prosperity of the farmers affects the prosperity of the whole country. .The farmers have their business chiefly conducted by a number of large companies, such as etock and station companies, farmers' co-operative companies, freezing companies, and others. The bulk of these concerns have a very large number of shareholders, and in most cases the shares are widely distributed amongst a large number of people of moderate oi comparatively small means. There are comparatively i&rr large wealthy shareholders Ail * these companies with'a net income over £10,000 have to pay income tax at the maximum graduated rate of 8s 9 3-5 din the £1. It really comes to more than this, because many charges which any well-managed company must place to the debit of its (profit and lost account are not allowed as deductions for income tax purposes. The depreciation allowed , is never sufficient, and such important items as contributions to staff pension funds and other funds for the benefit of the employees are not allowed as deductions. TEN SHILLINGS IN THE £1. "In most cases the income tax. will work out at nearer 10s in the £I.' The shareholders in these companies expect, however, to get a reasonable return on the money that they ha.ye invested, and they look to the management of the coniv panics to give them this return. The management of ci"cry company has to meet its shareholders at least once a year a.nd give an account of their stewardship. Shareholders expect. a profit and lost account that will warrant payment to them of a reasonable dividend, and they expect this profit and losr account t( be supported by a balance-sheet constructed on sound lines. If the management fails in this respect, even for a short time, all growth and development in connection with the company ends, and if the failure is continued the cora-r !>any must liquidate and cease to exist." It is shown how the present income tax on companies (1) makes it compulsory for companies to increase their earnings to at least 24 per cent, to meet taxation, pay a dividend of 8 per cent., provide for losses, and reserves; (2) increases,the rate of interest necessary to charge to farmers, on advances and on mortgages; (3) increases in freezing \ companies' charges; (4) penalises British companies operating in New Zealand; (5) and causes increases in the cost of living. The tax- levied on largo companies is described as a "rough-and-ready" method of obtaining revenue, but in the long run destructive of industry. The rich man in many small companies can escape with light taxation, while the poor, shareholder in and through a, big company may have to contribute 8s 9d in the £l'income tax, as well as subscribe to compulsory loans. THE REMEDY. The pamphlet continues : " The remedy is to do what is done in other countries; to do what is done in Great Britain and in Australia; to tax the individual in proportion to his means and not the company in proportion to its income; to tax "individual shareholders that are behind the company und not the company itself. This means that the wealthy will pay in proportion to their means; that people of small means will

be taxed lightly and will not be penalised if they mobilise their capital into a joint stock company to carry on their necessary business; and that customers -dealing with these companies will not have these excessive charges passed on to them. This is the one and only remedy." A WARNING NOTE. . Finally a warning is issued that " the present grinding taxation on large companies cannot continue withont disastrous results to the country. The continuation of this taxation means :—(a) That only those large companies that can succeed in passing the taxation on to their customers can continue, and that all large companies that cannot do this must immediately cease to grow and finally, liquidate and cease to exist, or withdraw from the country, (b) That the source of income tax will thus be dried up and the heavy imposition will defeat its own ends, (c) That the destruction of large joint stock companies which world-wide experience has shown to be the most efficient method of conducting trade and industry will cause further loss of taxation by depriving the New Zealand public of the services that these companies now render, (d) That, in this country, it will be impossible to promote any joint stock enterprises having for their object the manufacture of our products for export."