INCOME TAXES

Evening Post, Volume CXXIV, Issue 58, 6 September 1937, Page 11

INCOME TAXES

THE BRITISH SYSTEM COLLECTION AT SOURCE HOW EVADERS WORK Britain is •having her troubles with tax-dodgers, even as the United States, writes P. W. Wilson in the "New York Times." Sir John Simon, the new Chancellor of the Excheauer, recently told the House of Commons that the revenue authorities were "in the position of gamekeepers having to lax poachers." "As long as the poacher doesn't break the law," Sir John added, "he cannot, of course, be pursued. It is our business to plug the holes." The latest adjustments show that even minor leakages may involve considerable revenue. The most recent irregularities in Britain aggregate £7,500,000 in a year. They are as follows:— One-man companies .and transference of property to low-taxed countries like the Channel Islands, Panama, and Liechtenstein, £4,000,000. 1 Educational trusts for benefit of children and, dependants, £2,500,000. Bond washing—selling bonds plus accrued dividend and buying them back at lower price after dividend had been paid, £1,000,000. The sum involved runs to around 3 per cent, of the collection, and is thus considerable. On the other hand, the evasion has been dealt with promptly and with administrative vigour. Widespread tax-dodging is not believed to be possible in Britain—and for a wellunderstood reason. . In the United States, the income tax became legal, only on the ratification of the Sixteenth Amendment in 1913. But in Britain, the tax has been the annual concern of Parliament, with few intervals, since Pitt first imposed it in 1799. British Governments have thus had more Opportunity to plug loopholes in their law. It is, however, only by constant vigilance—as debates in Parliament demonstrate—that leakages are kept at a minimum 1.

TAXATION AT THE SOURCE.

One fact that has helped greatly to minimise evasions is that about 70 per cent! of revenue from income tax is collected before the | individuals receive the income. , A company or. corporation pays tax on its profits.at the standard income tax rate, which Parliament this year raised to 25 per cent. Only after' it makes this payment, direct to the Treasury, does it proceed to piy interest on its debentures and dividends on its stock.- What, the proprietors of-the company or corporation,receive is thus a persona] income free of normal income tax Similarly with interest on national and municipal and other securities. Income tax is deducted and paid to the Treasury, before interest is received by the owner of the securities. A tenant renting property is expected to pay income tax on the. .rent at the-standard rate, and what he remits to the landlord is the balance. The usual tenant is thus an unpaid official whose duty it is to collect his landlord's tax. Another factor'of importance is the efficiency of the British Civil Service; Treasury officials are chosen with particular care and after stringent examinations,- written and oral. They are independent of politics, and irremovable''except for misconduct. In; April, the taxpayer receives a somewhat elaborate document which he must send back to the authorities within about three weeks. He is supposed to note his whole income from every source and to enter what he considers 'to be claims for exemption. He does not at this point .remit any money. _ * The income tax commissioners consider the return and themselves calculate what tax appears to be due. They make this assessment about the month of September, and the final setlement of the tax by a payment is due on January 1.

FEW CASES IN COURT.

It is very seldom that a case of delinquency is taken into the criminal courts., Such cases are handled administratively by the Income Tax Commissioners themselves, whose aim is, in one word, revenue., The object is not to put the taxpayer in prisom, but to make him pay his taxes. A refusal to pay is made sufficiently serious for the delinquent, as a rule, by the knowledge that there may be distraint uppn his property. •, ' ' The procedure against offenders is by excess assessment which, in effect, is a fine. A person who fraudulently changes his residence, transfers property, neglects to make a return, omits items from his return, claimsl false deductions —for instance, for damage by flood or tempest—is charged three times the deficiency, sometimes with a fine of £20 to £50 added. Aiding and abetting such deception involves a liability of £100 to-£SOO. In the calculation of the tax, too, the British have their own method. It is broadly as follows:— 1. The total income is held to be assessed in principle at the standard rate. ' . ; 2. Credit -is then given for tax already deducted at the. source and for allowances on small incomes, etc. 3. Addition is made for supertax or surtax on large incomes. Though in structure the income tax is uniform—the standard rate —allowances and supertax result in gradation downward or upward. Also, earned income is differentiated by an allowance of one-fifth from unearned income. This means that a man receiving a salary of £1000 enters it for income tax at £§00. The allowance on assessment of earned income must not, however, exceed £300. That is, a man with a salary of £2000 has to enter not £1600 but £1750 for tax. and so for higher salaries. The allowance on small Incomes i's such that a single man is exempt from tax if he has earned £125 or less: a married person without a child, if he tias earned £200 or less; a married person with one child, if he has earned £300 or less; a married person with two children, if he has earned £350 or less; and a married person with three children, if his earnings have not exceeded £400. .....

A GRADED SURTAX.

As income rises over £200u, a graded surtax is paid on its, successive portions. The surtax begins at 5 per cent. for an excess of £500 and runs to 37.5 per cent for all over an excess of £48,000. . . Last year, according to best obtainable figures, 3.450,000 persons paid income tax.in Great Britain. The income groups and the amount they paid follow.—. Amount. Group. £ Up to £500 .......... J.... 23,000,000 £ 500 to £ 1000 ..... 35,000,000 £iOOO to £2000 40,000,000 Exceeding £2000 ........ 152,000.000 Total £250.000.000 This year, under the new rates, it is believed the total will be considerably greater—probably by' £50.000.000. Still other features of the British income tax have to be borne in mind: First, it is the only tax of the kind collected in the country. Thero are no local income taxes. ' Second, there are no tax-exempt

securities., All-income is brought under review, .:■ . ' Third, capital gains and losses are excluded. .If a man buys a picture, a piece of real estate or an investment and sells again, the proceeding enters into his return only when he is in the business of picture dealing, real estate, or stockbroking. ;There is a normal allowance on assessment, not exceeding one-sixth of the net personal income, on premiums paid on life insurance—this with certain limitations.- . . Residents abroad are liable iof income tax where collectible, but there I are certain provisions for relieving taxpayers from double income tax within the Brjtish Empire. An interesting question in Britain has always been • whether, on balance, more income tax' is collected than is strictly due. Where tax has been collected at the source, there are instances of failure to apply for a refund.