MEASURE EXPLAINED

Manawatu Standard, Volume LX, Issue 267, 9 October 1940, Page 9

MEASURE EXPLAINED

HOW TAX IS ASSESSED. EXAMPLES GIVEN. Per Press Association. WELLINGTON, Oct. 8. Explaining tlie purpose of the Excess Profits Tax Bill in moving tho second reading of that measure when the House resumed at 7.30 o’clock to-night- tho Minister of Finance (Hon. W. Nash) said that no one should, during the war period, receive from liis business or profession because of the war, or because of the abnormal conditions arising from the war, any profits or amounts in excess of an amount reasonably expected. That did not mean that persons were not expected to make profits during the war, but nobody ought to be allowed to make imofits out of the war.

It might bo said. Mr Nash proceeded, that tho boot manufacturer making boots for the army must be expecteu to make profits from the war and these profits should be taxed accordingly; but the war boot manufacturer left his civil business to other manufacturers with a resultant increase ot profits to those concerned. Therefore, justifiably and equitably, all P r °nI M must come under the excess profits tax provisions. ~ . _ r , T It might be said, added Mr Nash, that the Government called lor increased production from everyone, but it, had no intention of penalising tfiose who worked harder to give tout increase. Tho Bill made adequate provision in every case for increase! production, tho setting up of ne\v industries, and also for increased capital put into businesses for the purpose of increasing production. It was because of the difficulty ot defining excess profits that the Bill had been worded in the way it had, continued the Minister. The first principle in the measure was to determine . the standard income. Having got that, thev had to determine what was excess profit. The standard income should, meet most case*, but no matter lmw , careful and farseeing legislators niiJit be in writing a law it was impossible to be completely correct in determining what were tho excess profits that were to bo taxed. MEETING THE COST OF MAR. Tho second principle was the provision of the committee to be set up. it would probably be a committee °t three and it would be allowed to take each taxpayer’s particular casc into account on appeal. It was expected, added the Minister, that 90 or JJ pci cent of the cases would be determined automatically by the Conimmsioiicr ot Taxes, but there would be other case and where the taxpayer considered the amount for which he had been assessed bv the Commissioner as excess profits to he unfair and unjust, that ease would go to that committee which could take everything into account.in determining what was equitab.e and 3 The intention of the Government was to take from persons who made more than normal profits in war time some proportion of that amount and put l mto taxation revenue to meet in part the abnormal cost the country had to , bear because of the war. I The Minister then went on to deal in detail with the various clauses ot

the Bill. The excess profits tax, lie said, applied to this year’s income, namely, tho income derived from April 1 last, and it would be levied on next year’s assessment. It would become payable in February. 1942. Explaining how excess profits were arrived at, the Minister said first that tho standard income would be deducted from the total income for the year; second, the difference should be found between the tax payable on the total income and all taxes payable on the standard income, and this difference was the amount of the tax payable on excess profits; third, one took from excess ‘profits the amount of this difference and that difference was the total tax paid on excess profits; one took excess profits at tho rate of 60 per cent, of the residue to tho State and 40 per cent, to tho taxpayer. QUESTION OF FAIRNESS. In reply to a question by Mr Coates the Minister said if a taxpayer made a mistake in liis assessment provision was made for furnishing a new assessment.

He also stated, replying to a query from Mr Holland, that lie did not think the Commissioner of Tuxes, would be a member of tho special committee set up to deal with appeals. Mr Nash gave several examples or the operation of the tax, and m reply to Opposition interjections concerning the position of the farmer under the Bill, said that every farmer who fmd. had a. chance of studying the measure and the principles underlying it would agree that tho provisions or the Bill were as fair as it was possible to make them. No farmer would be called on to pay income tax if bis income were below £SOO. Nobody would be able to talk about a tax placed on the shoulders of the poor working farmer. Hon.' A. Hamilton (header ot the Opposition) stated that everyone would agree that excess profits made as a result of war should be regarded as a field for extra taxation, but lie pointed out that the commandeer ot primary produce and the activities of the Price Investigation Tribunal were a check on making excess profits, mo Minister had stated that the excess profits tax would not discourage increased production, but that was an assertion that could be questioned. It would require a good deal of enthusiasm to start a new business under the existing taxation with the excess profits tax included. There were two classes of useful pcoplo in the community who would have to bear the biggest burden ot taxation—manufacturers and farmers and it should he noted that manufacturers had been asked to manufacture more and farmers to produce more. If they did they would have to pay taxation. He contended that tne Bill defined profits and not excess prolific public mind, he continued, did not like profits made from war, but the problem was to find a just basis for taxation. It was difficult to get a correct definition of wliat excess profit was so as not to catch the taxpayer unfairly. During the last war an attempt to levy an excess profits tax was so unsuccessful that it had to be abandoned after one year. He contended that the Bill left a great deal to the Commissioner of Taxes and the committee that was to hear appeals. New Zealand was not a country where I excess profits were likely to be made, lie continued, and it would bo a costly tax to collect.

IMPORTANCE OF COMMITTEE. Mr Hamilton went on to emphasise the importance of the personnel of tlio proposed committee.. Il the members of the committee had the confidence of the taxpayers that would meet the bill fairly, he said.' hut if theorists were appointed who had not the taxpayers confidence it might not make the Bill worth very much. The personnel of the committee would eitner create the confidence of the taxpayers in the operation of the Bill, or a lot of fear m tho minds of taxpayers. 'the Attorney-Deneral (Hon. H. G. R. Mason) said Mr Hamilton had mentioned the question of interest in connection witu excess profits, but tins presented little difficulty. Surely, said the Minister, some interest should be allowed at a liberal rate. A rate should be fixed which gave security to tho businessman and lie thought the Hill reasonable in that respect. Mr Hamilton had also stressed the point covering alternative methods of computing the normal income. The period of three vears was a fair span to eliminate any extraordinary fluctuation. They had to guard against a system that would eliminate tho chance of any excess profit altogether. What was proposed in the Bill was not unfair, and it was well thought out to bring about lair results. Every care bad been taken m drafting the measure to see that there were no anomalies. FARMERS’ POSITION.

Mr W. S. Goosman, dealing with the position of tho primary producers, pointed out that farmers were subject to setbacks over which they had no control and the three years taken as a basis had been bad ones for some farmers. There was also tho ease of the farmer who had heavy liabilities and was working hard to reduce them. If lie made more it would be regarded as excess profit. Mr tV. C. H. Chapman said the points raised by Mr Goosman would bo dealt with by the committee to which appeals could bo made, and ho added that all profits ill war time should bo classified as war profits, because profits would be impossible if the men .at the front were not making effective resistance to tho enemy. He thought they could rely on the patriotism of New Zealanders to increase production.

On the motion for the adjournment at 30.25, Mr Fraser announced that answers to questions would he taken to-morrow afternoon and the debate on the Excess Profits Tax Bill would ho continued in the evening. The House then rose.