P.A.Y.E. Taxing System Has Its Disadvantages

Greymouth Evening Star, 3 October 1950, Page 8

P.A.Y.E. Taxing System Has Its Disadvantages

(By a Special Correspondent) At least once a year taxpayers tend to regard themselves as. a dej pressed class. They endure rigorous ; periods of self-denial and dig deeply into their bank accounts, or i household hiding places, in order to ■ produce the wherewithal required of i them by the ■ ever-hungry Depart‘ment of Land and Income Tax. : The suggestion, at that time, that ! a pay-as-you-earn system may be introduced, probably appeals im--1 mensely. If it were" introduced between the fateful months of October and February it would be almost unanimpusly acclaimed. Yet P.A.Y.E., as implemented in Britain, has its disadvantages. i British System I In broad outline, the situation in Britain is this: A single man has a basic allowance of £llO free from tax and a married man £lBO. For each child the taxpayer is allowed £6O, and for any other dependent £5O. On top of this he is allowed two-fifths of his life insurance premium and one-fifth of his earned income, the maximum allowance being £4OO. The tax year runs from April 6 until April 5 of the next year. A system has been devised to spread the allowance over the year in units of 52 or 12. The first step is to allot each taxpayer a code number, worked out on his scale of allowances. Special tax tables are then used. The deducting . authority—normally the man’s employer—can refer to the code number and look up the week of the year, the salary of the worker and the amount of tax deductible for the current week. —

i The standard rate of taxation does 1 not bear comparison with that in New Zealand, as it is 9s in the £. The rate on the first £5O taxable is 3s. For the next £2OO it leaps to 6s, and everything over that figure is taxed' at 9s, until the super-tax range of 19s 6d in the £ is reached. The Main Flaw j The main flaw in the P.A.Y.E. system is that the tables are prepared —indeed, must be prepared—on the ! assumption that a man will earn the same amount each week. In these days of overtime this causes some complications. The system works 1 out satisfactorily over a period of ,’weeks or months, but gives a series ; of false impressions. This often causes trouble, as workers cannot ’understand the fluctuations of their tax deductions. If a taxpayer earns, say, £l2 one week, whereas his usual wage is £6, he pays more than twice the amount of tax that week. In fact,

he overpays by a considerable amount. In subsequent weeks this is compensated for by the fact that he underpays, but th. 1 false impression has been given, and the man suffers from a feeling of grievance. Deterrent To Production This has proved to be one of the greatest deterrents to productivity in Great Britain. Albert Smith and John Jones begin to doubt after a while whether it is worth while working overtime, and no amount of explanation can convince them that they eventually get back what they appear to have lost. An additional deterrent, of course, is that indirect taxation—with which the British public has long been acquainted—sends the cost of livingsoaring. A packet of 20 cigarettes costing 3s 6d nets the Treasury 2s 9£d, two pints of beer at 2s 4d include Is 4d tax, a football pool stake of Is includes 3id tax, and the Treasury takes Is 9d out of 4s 6d paid for two cinema seats. These are just samples of the indirect taxation which, with income tax, swallows up half of all overtime earnings.

From the point of view of the employer P.A.Y.E. is more of a hindrance than a help. Large staffs have often to be kept, doing nothing but work out amounts of tax deductible each week. Employers complain, often bitterly, that they are paying for staff which should rightfully be employed by the Government.