LAND AND INCOME TAX.

New Zealand Herald, Volume LVII, Issue 17594, 6 October 1920, Page 8

LAND AND INCOME TAX.

AMENDMENTS TO 7 BIIJLL TAXATION OF DEBENTURES. "- - ' ' % ____ .' "X RELIEF FOR SMALL HOLDEES; "t REFUNDS TO BE MADE, [BY TEtSoiItirH.—SPECXAIi: BErOBTEB.] .■"-■ WgXiLXNGTON, Tuesday. \ amending arid new clauses for inclusion in thai Land" and Income Tax Ariiendment Bill were introduced in the House of ■ Representatives ,by GovtrnorGeneral'a message this afternoon. v The leader,of the Opposition, Mr. T. M. Wilford, < objected that new clauses .were being \. sprung *on the, House > just before the second reading debate, but Mr. Massey, said bo 'was not going .toJht^ryflatters, «■ He wished both the House, and the country to be thoroughly; acquainted with the Bill before it reached the Committee stage. /'.',■ ■• ■: , , ,■ '--. v l s In clause v &creased exemptions from; income ;tax in respect of insurance premiums, .it is; now proposed that "the deductions by- way of special 1 exemption shall not exceed in the aggro? gate .15 per cent, of the earned income of j the ; taxpayer," In the Bill ;as originally drafted*} it was 20 per cent. "■■•■■ " i ; It is now proposed to-omit clause 23; dealing with the taxation of local authori-' j ties' debentures, and to substitute the fol-J lowing iff ;,•_, ,*■■ ■ "*■■":>■'■.. ■'-' ..."■.,'■■-" ■..-■,■.'*. > !'il) Every local or public authority ■which has, : whether before .or after ; the j commencement of this Act, issued" dehen- j testes' to '• persons resident in New: Zealand shall, for the purposes of the principal Act, be the agent of all , debenture-holders, j whether absentees or not, in respect of all income derived by them from- those. -de- : J bentures, and , shall make., returns c - and be assessable and"liable»for income .tax on that income"accordingly.- . '1.-,'I .-,' . .*"., ,*i -J v-"-{2)- No deduction by way of special exemption or otherwise shall be, allowed to any local Or public authority as* such agent or to any debenture-holders ih re-, spect of the income so derived,from debentureSi- i ; j ■■".'., ' ~'■ _ ■ : : . V ; - "(5) Incomes ed derived by. the holders of debentures issued by a local or public authority shall ghe" assessable; and ichargeable .wife, income, tax separately from , income derived >~ by ; ; the debenture-holders from other sources and unless otherwise expressly provided in ; the annual taxing Act for year, ehall be assessed at the ■rate'specified in ; that behalf in Part H. of the schedulethereto.** ;! ; : ■'?■?>'>''■■•■■*' : 'S. ' - ; .•••; ,-.V ■• ' ; The rateiprdposed? in C the schedule is 2s 6d ir-. the £. ■:■[■■£ ,-' : j- .J'Eel tw&i. of Excess Taxation. , It is proposed; to repeal sub-section 2 of 37 .■ of -the ! Finance Act, -■- 1917, and substitute the following:—" the Commissioner is satisfied with respect to tie holder of any debenture r or- debentures jssued Vby any local ,or public authority, oc by any company, Jhat.the segregate amount ?of income -tax * paid or ?. payable by or on ; : behalf of the debenture-holder (including, the Jtax . paid « in respect of fin-. terest on .debentures) exceeds the amount of ' tax v that would have been payable by; bun if I tie interest received by him on those debentures had formed part of'his taxable income, the commissioner shall, on application by the^taxpayer;? pay to him the amount of theexcess;" ;t. One of the new clauses makes special provisionsas to the floating rate of interest on. debentures. The.Jnterest to, be v paid on : the .-* debenture shall be competed as part of the assessable income of the company -arid not of * the debenture- ' holder. Section 112. of the. Act ; of 1916 shall not apply with respect to any such debenture or to 'the interest paid or . payable , thereunder. :* ~.( '\[ ... '. -.' *'~\ '

: , v Computation of Earned Income. ' .For the* purpose: of computing the taxable income of any taxpayer, all" deductions from the assessable income by way of special exemption (other than exemptions under section 87 of the : principal s Act) shall, to.; the extent . of, the earned income Of the" taxpayer, be made from that income, and' the balance (if any) shall be deducted from foe unearned income.- , ■Another^ amendment of ■ the schedule provides, in Respect of the 10 per cent, deduction of on "earned incomes : "Provided „that if : the yarned ■ income 'of a" (taxpayer for any year exceeds £2000, the reduction provided for by this clause shall be made only in respect of the sum of £2000." ■' j~t, —'•;.:■ i '..; ; ■ -,■'

Foreign Insuraace Companies. Another new clause is as follows — : * "Where any taxpayer ia New Zealand enters into a contract' of insurance or guarantee against loss, damage, or risk of : any kind whatever (not being a contract of life insurance J with any foreign company not carrying on business in New Zealand, that company shall be liable to income tax under the principal Act, on the profits derived by it from such contract of insurance or guarantee. For the purposes of this section the profits: derived from every such contract shall be deemed to be an amount equal to 3.0 per,- cent, of the amount payable by the* taxpayer as premiums in respect, of such contract. "For the'purpose of the principal Act, every person who enters into,a contract of insurance or guarantee, as aforesaid, shall be deemed, to be the agent of the foreign company, and-shall make returns and oe assessable and liable for income tax accordingly."

BILL BEFORE TEE HOUSE.

SECOND READING STAGE. SPEECH BY PRIME MINISTER. [by telegbaph.—special repobtes.] WELLINGTON. Tuesday. An explanation of the Government's taxation proposals was given by Mr. Massey in the House of Representatives this evening in moving the second reading of the Land and < Income Tax Amendment BilL He said a-very large section of taxpayers got the impression that they were called upon to pay too much and that their neighbours should pay a little more, the burden of taxation being readjusted accordingly./ He had always taken the position "that any. citizen or section of citizens should contribute to the revenue of the country in proportion to their ability, and in proportion. to tne requirements of the country itself, and that was the line he had taken in connection with this Bill. On the whole the criticism of the Bill had been favourable. It was possible that the Bill might increase taxation, but if it did, it would be only very slightly. Before it could come into operation, he would have a better estimate of what the finance of the year would be and it would give him very great pleasure to be able to reduce taxation— more than it gave him to increase it. Personally he looked forward to the time when he would be sole to reduce taxation, and if he was not mistaken, that time was not very far off, but there were difficult times comin" and they had to be prepared for them and keep the finances of the Dominion on a sound and strong basis. Ifgthere was a surplus at the end of the year, that ' would give something to reduce our debt. The first two quarters of the year were quite good from the revenue point of view. Referring to the new clause making local and public authorities the agents of de-benture-holders, Mr. Massey said the difficulty was that the department was not able to follow the local body debentures, and it was losing a great deal of revenue. The department "Was pressing for a, better system, and it -was justified in doing so. -The clauses as now drafted were an improvement, and it would be a very good thing for the local bodies. The Government was asking them to collect the tax a£ 3, flat rate of 2& 6d sad vr& putting

i - i .i.n i — them in a better position with their borrowed money; /So/far as companies' were concerned, there was no alt-erataot?ui,.the system: that' had:,been in- operation, for many years. The companies collected the tax and "handed it oyer to the Treasury. Company debentures-were to pay a little more—3s instead of 12s 6<L To'show; bow popular companies in • New Zealand were, ■Mr Hewitson mentioned that during the last six aionths: 24 companies had been registered with :a - total capital ' of £5,599,985.- - ' - ■ Referring to the taxation of unimproved lands', Mr. Massey said the Dominion had reached thatA stage; when ,an v enormous amount- of money 4 had to -be found "every year, such-an amount .that they could nofe" afford to allow land to, lie idle. (Hear, hear.) Such land must be made productive or the man "who owned ■" it must pay in- ; creased taxation. - They were giving him time to get his improvements under way. Commentins~dh"the>focreased # exemption for children, Sir- Massey [this principle might have to be further extended, v The Bill did away with the distinction between ordinary taxation and war taxation. This might lea people^ suppose that there was no prospect of -taxation * being reduced; That was not so, for he was hopeful, thai that position ' would riot be - long, delayed. Clause 20. was, designed to ■circumvent .-a procedure by which the t department "was losing, a, good "deal ," of ■revenue;' through huge companies apparently dividing themselves and then coming under lower rates of taxation. This Was one of the most important-clauses m the BUt' *■ ?""'"''■'.''' In .concluding.. his analysis ~of the measure; the Prime Minister quoted • figures, to showithe effect of the new scales.. He said that! as 5 far as the land tax' was concerned: it did not show much difference nntUJa value ; of about £15j000 was refeebedC &■ some of :the lower values there was an actual reduction shown.' He quoted the foUowihg' figures, comparing the amounts paid under the. preseriV scale and'the. proposed . scale for the' values,of the land shown :*~ .•':. ~ Lis,tidvalue. , 'Present scale." Proposed'scale, ] ■■'--:>:£ *'v'. ■-':■-■„■ .*"«.'. d ■:•. '£~% d-.:-. 2*ooo 4 - ;12 17 9... '..--Jl---13 i ! ■■~ 5,000 A --*- 35 ! ;2 0 33 6 8 . "10 000"; V *'* 80 1 6 •80 11 1 - XSOOO ■'-,'. ■'"-■ 134 15 3 14113 4 /,:. 20,000 - • 199 . 4 4 .216 14,4-.- ;'■".-. 90,000 •' 2,126 19 0 ,2.710 0 0 ;.. , 138,000. ;;;: 2,555-0 0 6,018 68 v : ThOjast figure quoted was the one at: which "the highest scale appeared. '>*• The increase shown was very considerable. In reference to = the y income tax, Mr. Massev compared the 'proposed rate for New Zealand'with the scale obtaining in the United Kingdom. He said he could not give the amount" of exemption • there.' It had been raised' Recently and'he did not know what the present figure was. ; The figures he .quoted are set: oUt : in the fol!lowing:-- ' * . .'.v'K'- I '',?•■"'.'., ■? ' Taxable ' l N.Z. United I■: Income. : Propdsed. Kingdom. 'V "'£ ""■" " £ £ ; " ; 1,000 >■■■"■'' =■''.'• 90 "' , •'■'': 187 --",''""'' ' .2,000 i - ' 230:■'■ ; 625 ■■:--■ ■ ,3,000 % 570 -' 987 6,000 A . 2,040 2,336 -' : ".:.'':' ;■-7,000;-'' '■' N;< v 2,535-.'. -.- 2,837 '■;•■- : : 8,000 . " 3,120 \- 3,862 ' , _, 0,050 \:-..;-■'. 17,600 ' 21,712 The last income - quoted, £40,000, said Mr. Massey; was the top -of. the tree so fas as we were concerned and he did not think-there r was anybody in this country paying taxf on an assessable- income of that size. '-.-„:•. ■■■ . '". .7 X- < ■"■■■ *'"-••■* ■Mr. W. D. Lysnar (Gisborne): •? But companies d 0.., '-* - •'■'", :;>• ; .: ' r - : ii -' ■'' 1 Mr; Massey i Not very >. many of them, I think. v There wfiSiavery Important point to be noted, he added, that in the United Kingdom on top' of the- ordinaryf> tax there' was an excess profits tax up- to -60 per cept. of all excess profits in addition to the income tax quoted. ' '''■.:-:'■ ; • The debate was continued ■,by. t . several members,, and Mr. Massey replied briefly. The Bill' was then read a second time*

MEMBERS* VIEWS Oir BILL. MR. WiLFORD'S • CRITICISM. '■ ? „SUGGESTES IMPROYEMENjTS. ( £BT TELSCEAMr.-NPIIBSS ifcSSOCIA'nON.] ■--'-( * WELLINGTON. Tuesday. ■■$; Following, tie 'Prime Minister in the second reading debate on the Land and Income Tax Amendment BUI, .Mr. T. M. Wilfard (leader of the-" Opposition) said .the Prime Minister had not' touched- on the real scheme of the Bill, which • was to take taxation off * higher 'incomes anu make it. Tip out of .companies and local bodies. Clauses 4. and 5 *e«%ell enough, \ but they .- might have been . made more | liberal, for the .number of be I benefited was not nearly so large as was | generally "supposed. Clause .< 6 was defective, since there was no 'appeal, irom the Commissioner's decision. There should be a better .definition of unimproved land, and town districts were omitted, from its provisions, which was a, mistake., He complained that clause 9 was so drafted that it did not convey what was meant', or if it meant what it said, then it decreased instead of increased the graduations on higher incomes. t This was the real fault of the Bill, for it confirmed the bad old system which they had been fighting for years. Higher incomes should have the graduation increased the higher they went. Clause 10, he maintained, abolished the absentee tax, which, he declared, was wrong in principle. In its treatment of local bodies the Bill was disastronsj for while it might be said it was only intended to tax the trading concerns of local bodies the'fact was that the whole of the income of local bodies; with but small exceptions, was taxable. Mr. Massey said the Bill was only intended to tax the trading concerns of local bodies, and if this was not clear he was prepared to make it so. Mr. Wflford said that might be so, but did it only do that? He thought not. The proposals in the Bill with regard to the taxation of debentures already issued were a breach of faith.

Mr. Massey: There is no breach of faith in the Bill.

Mr. Wilford: That is my interpretation of it.

Mr. Massey: Then your interpretation j is wrong. Continuing, Mr. Wilford said , the attempt to define "earned" income in clause 15 was, futile. There were more than a hundred avenues of income earned which it was impossible to define. . It was much easier to define "unearned" and let all the other income go as "earned." The attempt to catch shipping companies under clauses 17 and 18 would fail, because shipping companies always passed the taxes on. Clause 19 was fair, but he adversely criticised the method proposed of assessing income derived from debentures. Mr. W. D. Lysnar (Gisborne) said he thought the Bill should pass. If our products were properly handled there would be no fear of a slump, and next year or the year after the Government should be able to reduce taxation all round. He thought the proposals regarding the taxa l tion of local body debentures would help local body loans rather than retard them, because the flat rate of 2s fid in the £ was a concession to large lenders, from whom the local bodies got most of their money. Mr. J. P. Luke (Wellington North) said he thought the most-welcome clauses in the Bill were those which gave relief to the family man. Concerning the taxation on local bodies he was pleased to find the Prime Minister, by amendment brought down that night, proposed to exempt the small debenture holders from taxation. At the same time he felt l sure the proposals in the Bill would detrimentally affect the raising of loans by local bodies as lenders would naturally prefer Government loans to those of local bodies which were subject to a tax of 2s 6d in the£.

Mr. T. K. Sidey (Dunedin South) condemned the land tax proposals of the Bill.

- Messrs. Wright (Wellington Suburbs) and Dickson (Chalmers) contended that the position of harbour boards in regard to the debentures tax was by no means clear, and urged Mr. Massey to go carefully into the matter with the Crown law .officers. They did not like the suggestion that a breach of faith was being committed.

The Hon. J. A, Hanan (Invercargill) urged the necessity of taking more taxation from individuals and companies deriving large incomes in the Dominion,