The Evening Star SATURDAY, JANUARY 5, 1918.

Evening Star, Issue 16624, 5 January 1918, Page 6

The Evening Star SATURDAY, JANUARY 5, 1918.

We have jnst had thrust upon our notice a case revealing the tinEscape from equal operation 'ox the Income Tax. War Income Tax. A gentleman in receipt of an income so large that, judging from its size, he ought to pay nearly 7s 6d in the £ tax practically pays no Income Tax at all. The reason discloses a grave defect in the law. This gentleman is a preferential shareholder in the profitable business of a large company. As commonly provided in articles of association for holders of preference shares, ho receives a fixed rate of interest on his invested capital, -which does not rise with prosperous years or fall with years of depression. The exceptional gains or exceptional losses are borne by the ordinary shareholders { and it is these who bear the burden of the special war tax upon ! income. As the great bulk of the income of the. capitalist to whom we refer is drawn as dividend upon his preference shares, that income is as little subject to war taxation in 1918 as it was in 1914. The taxing net has got a hole in it that calls for prompt repair when such incomes escape. True, tho State does not lose, because the company with its wealthy preferential shareholder pays toll upon every pound of income earned. But the richest member of the company escapes, and the burden is thereby increased upon the less rich or relatively poor members. The favored gentleman who vouchsafed this information concerning himself has a generous public spirit, and consequently contributes more to patriotic funds than the amount of the tax saved; but all tax escapees have not the same commendable spirit. The serious point is that this individual is not singular. Probably the majority of companies have on their register preferential shareholders. In nearly all cases these shareholders have tho largest interest in the business of the companies, and are the most affluent members. It wonld be interesting to find out how many men of this class are in receipt in these war years of incomes undiminished by war taxation. The class of preferential shareholders cannot be a small one, and the aggregate income from preference shares must be of great magnitude. The present system of taxing the receipts of companies as a whole, instead..of taxing the incomes of individual members of the companies, gives rise to many anomalies. When the taxing legislation was being considered by Parliament last year relief was. given to small shareholders Whose total income does not exceed £4OO a year. Such persons were protected from a tax of 7s 6d in the £ -on their small dividends from wealthy companies. It does not seem to have been realised at the time that the hardship on the poor shareholder was correlative to a privileged exemption commonly on the part of the wealthy shareholder-

The more we examine into the operation of the system of taxing companies, tho more fully are we porsuaded that the special assessment of the incomes of companies for taxation shonld bo abolished, and a general tax be imposed on each individual's income which reaches the taxable limit, irrespective of the sources from which the income is drawn. Wo admit that some special provision for the taxation of foreign companies doing business in New Zealand would have to be made; but this need give little trouble. It is surely urgent that the present exemption from Income Tjax of a wealthy and numerous class in the Dominion should cease immediately.