TAX-FREE PROFITS.

New Zealand Herald, Volume LXVIII, Issue 20970, 5 September 1931, Page 10

TAX-FREE PROFITS.

The search for revenue to meet an abnormal situation may legitimately be extended into fields from which at least a temporary harvest may be reaped, even if the imposition of a levy by the State may ultimately reduce the taxable profits to insignificant dimensions. The operations of municipal trading enterprises cannot escape attention in present circumstances. For many years they have been exempt from taxation for two reasons. One has been that in many instances municipalities ventured into business undertakings chiefly because the prospects were not sufficiently attractive to private enterprise. Another was that, after meeting capital charges, few of. these undertakings produced any profits, and, although there is a close analogy between those capital charges and the dividends paid by companies, no Government has ever approached the point of suggesting that taxation should be imposed upon earnings earmarked for fixed interest payments. With the rapid expansion of electricity, a new situation has developed. Many distributing authorities have been earning large profits in excess of capital charges, and have enjoyed the same exemption from taxation as the struggling municipal enterprises that barely make ends meet. According to the official compilation of power board accounts, the surpluses in excess of interest and sinking fund charges shown in 1929-30 by distributing authorities amounted to £595,000; the greater part of this amount was allocated to depreciation, renewal and other reserve funds, or expended on capital extensions. The ten authorities whose operations resulted in deficits totalling £17,380 would regard the question of taxation impartially. Interest and sinking fund payments by all authorities amounted to £805,486, the exemption of which from taxation was .alone a very valuable concession, especially as no private enterprise would be allowed to deduct anything'analogous to sinking fund payments from its returns. The whole of the surplus of £595,000 might not have been taxable in private hands, but a very large proportion certainly would have been. Some of the proposals in recent Budgets have been concerned with much smaller matters than these, and taxation has been imposed that is less easily defended on equitable or practical considerations than a claim upon prosperous public corporations and municipal trading enterprises generally to share the burden of taxation.