THE DEBENTURE TAX.

New Zealand Herald, Volume LVII, Issue 17596, 8 October 1920, Page 4

THE DEBENTURE TAX.

From an essentially simple matter, the taxation of company and municipal debentures has been magnified by the Government's various proposals into probably the most perplexing feature of the Land and Income Tax Bill. Attention was first directed to the matter on the ground that, it was anomalous to limit the tax on income from company debentures to 2s 6d, when income from other sources, including municipal debentures, is taxable at rates proportionate to the total income. A complicating element has ; since been revealed in the general impression that holders of municipal debentures might with impunity neglect to pay taxes on the interest. There were two purposes in Mr. Massey's original Bill: firstly, by clause 23 to insure that income from municipal debentures, which has always been taxable, should be taxed by making the issuing authority deduct a flat rate of 3s; secondly, by clause 22 to provide machinery for the collection of additional taxes from holders of either company or municipal debentures, whose total income fell within higher rates of the graduated scale than 3s. It was properly objected that if the Government proposed to collect additional taxes from high incomes it should make refunds in respect of small incomes, and the summary of the amendments telegraphed on Tuesday evening indicated that this had been done, in .respect of both company and municipal debentures, by the substitution of a new clause for clause 23 of the original Bill. Reports published in Wellington, however, thow clearly that it is proposed also to omit clause 22. Consequently, as the Bill stands, the Government proposes that the maximum rate of taxation of company debentures shall be 3s and of municipal debentures 2s 6d, with refunds to holders whose total income does not make them liable tq these rates. Holders of company debentures whose -incomes exceed the 3s rate are, therefore, to retain the concessions they already enjoy, and holders of municipal debentures whose incomes exceed the 2s 6d rate are to receive a concession in taxation such as no other class of income is afforded. Mr. Massey admits that " the big man" is being given an advantage, but excuses the J abandonment of the original scheme on the ground that this will be in I the interests of local bodies, since it will attract capital to them Nevertheless, if the Bill is passed in this form Mr. Massey may find a renewed process of reconstruction of companies on debenture capital to evade taxation at the full rates. He already recognises that holders of large incomes are being offered a loophole of escape through investment in local body debentures. There is joe* • question^ihat -^sEae^_ggsjs%gsJ i ce must J>e jgifren to local body finance, but surely there is a better method than making their debentures partially tax-free for the "big man," while the small holder is to be taxed to I the full extent of his income rate,