AN INCOME TAX ANOMALY.

Manawatu Standard, Volume LXI, Issue 195, 19 July 1941, Page 6

AN INCOME TAX ANOMALY.

lx the course of his Financial Statement the Minister for Finance mentioned the Government’s decision to remove an anomaly in regard to the assessment of the trading banks’ profits for incometax purposes. For a long time past they have been assumed to earn such profits in proportion

to their total assets and liabilities, the rate since 1915 being 30s per cent. As the Minister pointed out an assessment made in this way bears no relationship to the true profits of a bank, and the injustice to be removed has been the subject of protests from time, to time. For instance, if a bank receives ,-£IOO as a fixed deposit and lends the money to a customer it is presumed to have made £3 profit on the transaction. Lord Balfour of Burleigh, chairman of' the National Bank of New Zealand, when commenting on this system when taxes were lighter than they are to-day, said it had resulted in the bank paying income-tax greatly in excess of the amounts which would have been payable had the actual realised profits been assessed to tax in the ordinary way. Not only did the income-tax payable by the bank thus not vary according’ to the amount of profit actually made in any year, he said, but the system operated regardless of whether any profit was in fact made at all. Such a system is obviously unfair. Its proposed removal now may be associated with the lowering of overdraft rates to a minimum of 4 per cent, and a maximum of 5 per cent. In a case where a bank received money at 2 per cent, and lent at 4 per cent, its profit was thus restricted to 10s in each pound by the arbitrary assessment of 30s per cent., and while it may be said that money is held at a lower rate, or interest free, only part of short-term or call money can be safely lent by banks. The matter is one of considerable interest to the public who must borrow from the banks. At the same time people with money on fixed deposit will not be inclined to view-with favour the lower interest rates they are to receive.