NOTE AND COMMENT

New Zealand Mail, Issue 1509, 31 January 1901, Page 51

NOTE AND COMMENT

It will be remembered that a' short time back the co-operative aairy companies cf the Wairarapa protested to the Government on behalf of themselves ahd co-operative dairy companies generally against the imposition of an income tax on the profits of these companies. This protest was held to be reasonable, and an amendment to the Act was made during the past session, which provided that the profits made by co-operative dairy companies from milk supplied-—and which profits were returned to supplying- shareholders —should fce exempt from taxation.

The position before the passing at this amendniefnt was that certain cooperative dairy companies were taxed on an amount shown in their balancesheets as “profit dividJed among shareholders.” Some companies, however, showed this amount as it should have been, viz., a balance “due to suppliers for milk delivered/’ >■

The payment to suppliers is worked out in this manner. In the majority of cases a company when shipping on a consignment basis receives an advance, and should the butter realise in London a sum exeeeing the advance the surplus is sent out to the factory, often at the end of a season, but sometimes at stated! intervals. The factory, therefore, has to decide on an advance to be paid to the suppliers throughout the year*, and at the end of the season the different surpluses are added and divined proportionately among the suppliers as a balance of the amount which their milk has realised. It was the paying of tax on this balance that the companies objected to. The companies who showed the amount in their balance-sheets as a profit weire taxed on the amount, whereas no tax was demanded from those who showed ft purely as a balance due on milk.

* * # * * When tli© amendment referred to became law milk suppliers were under the impression that co-op erativd companies were exempt from all taxation. It appears, however, that their anxiety to escape taxation has after all been the means of awakening the Income Tax Department to the fact that there are items in a co-operative company’s bal-ance-sheet which are not affected by the amendment and which are legally ana equitably taxable—such items, for instance, as dividends on share capital, amounts written off for depreciation and interest on borrowed capital. These amounts 00 , -operative dairy companies are now being calledl upon to pay a tax on, with the result that hardly one company has recognised the justice cf the claim, and they are all with one accord railing against the demand. * • * * * »

We wdiild point out, however, that the tax is only levied on amounts which are reasonably taxable and are liable to taxation in the ordinary course of any company’s transactions. The amount after all is insignificant. Take an average case. A certain company has a paiu.-ut> capital of £BOO, six per cent on wfiich ’ would amount to £4B; £52 is written off for depreciation (but the Tax Department allows a concession of five per cent, on half the value of the plant), and £lO is paid on the overdraft. Here we have £llO, ten per cent, cn which is £ll, an amount which surely any dairy company would not miss.

The contetion has been raised that farmers supplying co-operative dairy factories with their milk already pay a land tax, and that, therefore, they shoulu bo exempt from any further imposition. It should be remembered, however, tnat the land tax they pay is based on tiie unimproved value of the land, and as they are exempted up to a valuation of £SUO it is plain to anyone acquainted with dairy farming that only a small percentage of dairy farmers are liable for the tax. Tho dairy farming interests can-

not expect not to pay towards the revenue of the country, especially in face cf the great assistance the dairy industry has received 1 from the Government. The matter is being taken up by the National Dairy Association, which is circularising its members, and pointing out the justice of the claim made by the Tax Commissioners.