TAXATION

Hawera Star, Volume XLVIII, 18 July 1924, Page 5

TAXATION

REPORT BY COMMISSION

COMPANIES UNFAIRLY TREATED

PROPOSED CHANGES IN SYSTEM

(BY TELEGRAPH—PRESS ASSOCIATION.) WELLINGTON, July 17.

lhe Prime Minister to-night laid on the tabie oi uic House the repoit oi the Royal Commission recently appointed to inquire the present system oi land ana income taxation in an its aspects, including the scope, rates ana incidence ol tne several taxes, allowances and. reliefs assessment, appeal and collection and prevention of evasion and wnat alterations of tne law art necessary or desirable, lhe commission comprised Mr Justice Sim and MessrsJ - VV- D. Hunt, U. Shirtchne and 1. e>. \Veston. The report states : In connection with income tax the principal (2uestion before us was as to the imposition of the graduated income tax on companies in the same way as if they were individuals. A large number or witnesses expressed an°opinion on the subject, and the majority ol them condemned the present system of taxing companies as unjust and as having the elreet of preventing the embarkation of large amounts of capital in new commercial undertakings. On the other hand, a number of witnesses favoured the maintenance of the present system.

It seems unnecessary for us to entei into an elaborate discussion of the matter here. The arguments against the present system are set forth in the evidence of the witnesses who condemned that system, and also in thcreport of the majority of the taxation committee of 1922. The arguments in favour of the present system are- sel forth in the minority report of the same committee.. We have considered the matter. The tax is a tax upon income from all sources of each individual, and we recommend that tht fiscal policy of the Dominion should be shaped so as to secure the abolition as soon as reasonably practicable of the present system of company taxation. A\e think it desirable to add that the present system of income taxation served a useful purpose during the wai and the immediate post-war period under the conditions then prevailing, fulfilling, in addition to its natural function, part of the English excess profits tax and enabling an astounding amount of revenue to be raised with a minimum of inconvenience to individuals and the general public. With a return to more normal conditions tif trade and industry the inequalities of the ureserit system became apparent and it'is advisable to change over as soon as. practicable to a more ideally correct svstem. Regarding the land tax, the report says a great deal of evidence was heard for and against the land tax, 'the weight of the evidence being against both the land tax and the graduated land tax and in favour of abandoning both and substituting a graduated/income tax.

The conclusions arrived at include the following:— (1) Land and income tax must he considered together, as they dovetail into each other. (2) A graduated system of income tax is sound in princinle and necessary m practice.

(3) The present system of graduating the income of each company as a separate income and charging tax accordis not- in accordance with the true spirit of a graduated income tax. (4) A graduated system of income tax makes it necessary to aggregate the income derived from land 'with other income for taxation purposes, ana exemptions consequent uoon the land tax stand in the way of this. For this and other reasons the land tax; including the graduated land .tax, should as soon as possible be abolished. J.lie report says its conclusions have dealt with, the- incidence of taxation, but we wish to record our view that the weight of taxation is most important, and that it is essential in the interests of the future prosperity of the Dominion that the w-eight of taxation should be reduced as rapidly possible.

Following are the recommendations of the commission :

(a) That legislation be iiassed in structing and empowering the Commissioner of Taxes when obtaining future income tax returns to compel an individual to include in his return the w-hole of his income from all sources, . juyuig the amount from each source separately.

(b) When data asked for under (a; is obtained and compiled (which wifi be towards the end of 192 p) the question whether or not a copfplete change can be made from the .present system of taxing companies direct as individuals to a system of taxing everv in dividual upon his total income from all sources (excepting only tax-free wai Joans), should he carefully considered, fl a complete chitnge is found difficult or impracticable then a beginning should be made by taxing individuals in respect of dividends received by them from companies and supplementing the revenue obtained in this way by a moderate fiat rate on all profits ol companies.

(c) That the maximum rate of the graduated tax should first be fixed at a level that will not cause- an outflow’ oi capital 1 ram New Zealand. It woulu be advantageous .to fix a rate which would cause an inflow’ of capital., 'this rate must be adjusted from year to year, according to financial "requirements and circumstances both within and without New Zealand.

(cl) Having fixed the maximum rate graduation dow’iiwards should be on a scal-e that will enable the required sum to be raised, such graduation to be made in such a way as not to be oppressive on the taxpayer of smal. means.

(e) ihe rate upon the mdividpal profits of companies should be approximately half the maximum rate. (1) If it is impossible without’ undue hardship to obtain the necessary revenue from the sources already’ mentioned, then the revenue from these sources should be supplemented by a moderate flat tax on companies -assessed upon their total profits. This supplementary tax shoukr b<j in addition, to the tax on their undivided profits. (g) Companies registered wutside New Zealand should be taxed on their total incomes derived from New- Zealand at the rate at which companies registered in New Zealand are assessed on their undivided profits, and should also be liable in respect of such, incomes for any first-rate company tax. (h) Oversea shareholders and debenture holders in companies registered in New Zealand should have their tax stopped at the source at a maximum rate. Companies interested should be deemed agents for their oversea shareholders and debenture-holders, and should be responsible for the payment of the tax. Oversea shareholders and debenture holders should have the right to apply for and obtain a rebate of the difference between the maximum rate that would apply to the whole of their income derived from New Zealand. No

exemption should be' allowed to overAll v fc-nlOi a In i\Cn‘ *

0) incomes or pastoral ' tenants should be made subject to tax, and tins should be done immediately, so tout incomes lor me year euuuig March 31, 1924, will not oe allowed to escape taxation.

lj.) mat the present graduated Jand tax shoum be auousneu and income tax should be paid in respect of income from land as part ol a taxpayer's income.

(.K.) mat any loss or revenue brought about by the adoption or tne last recommenurttxon sliouia ue nmue up Dy a, rlUu lami tax on an ummureveu unul v aiues over witn a rate below or iwo-uiims oi tne rate uouve £2OOO. The present Lt-'oUO and mortgage exemptions snouia oe continued, n is thougdi tout id in tne £l up to a. 2000 ana id m oeyond that amount win produce tne sum at present rtquireu. Jll assessing income tax no coemption snould oe allowed 111 respectnt this land tax.

GO The llao rate tax on companies reterreu to in paragraph (f) and the nat rate land tax jererred to in paragraph tk) should both be regarded, as temporary taxes, to be reduced and ultimately aooiisheu as soon as the national hnances .permit. ; r (hM in the meantime and until an individual system of income tax has oeen brougnt into operation the incomes of individuals from all sources tax free war loans) should be aggregated in order ,to hx tne rate that snouia apply to that portion of a- taxpayer’s income that is taxable m his own hands, in fixing the amount of nis tax the amount or tax paid at the source in connection with lus other investments should, be taken into account, but no rebates should be made if the total amount paid, after charging tne amount taxable in the taxpayers own hands at a rate that should q/piv to that amount, only comes to more than the amount that the tax would have been if the whole income had been taxed in the hands' of the caxpayer.

(n. ) lliat when these land tax recommendations are put into effect the '(Jommissioner of Taxes should be empowered to assess the net income at 5 per cent, on the capital value of any land that ne considers to be either lying idle or not beiiig utilised so as to produce a lejisonable income. (o.) That the question of double taxation be further considered and arrangements made that-will result in British • capital invested in New Zealand being . placed in a position at least as favourable as in Australia,- provided such an arrangement does not put British investors in New Zealand on a better footing than the New Zealand investors. IP-) That in any event the favoured position of public body and company debentures as far as income tax is concerned should be abolished immediately. (q.) That if the grandated land tax is not abolished rebel should lie given in connection with tne present graduated land tax payable on business premises.

(r.) That State and public bedy trading and public utility, concerns should be, charged income and land tax to the same extent as private enterprises, and that for the purposes of taxation their borrowed capital should be treated in the same way as borrowed capital in a private enterprise is treated. (s.) That the tax paid on company debentures should be put on the same footing as the tax deducted from company debentures. (t.) That relief from land tax be given to land devoted to plantations of timber trees and areas not exceeding 25 acres of native bush. (u) That a more reasonable allowance for depreciation of tramways, workers’ cottages and other wasting assets be allowed in the case of sawmilling ' and mining ventures. In laying the report on the table, the Premier said an opportunity for discussion would be given later. The evidence would not be printed for some time.