The New Zealand Times. THURSDAY, SEPTEMBER 6, 1917. COMPANY TAXATION

New Zealand Times, Volume XLII, Issue 9758, 6 September 1917, Page 4

The New Zealand Times. THURSDAY, SEPTEMBER 6, 1917. COMPANY TAXATION

The radical defect in the income taxation of New Zealand is that individual taxpayers are treated sometimes both as individuals and as companies. The anomaly is aggravated by the compulsion of the individual to pay in his capacity as a company the highest rate of taxation under the income tax law. A small capitalist whose money brings him £4OO to £7OO a year from share investment—in large concerns—has to pay the State the same rate of income tax that is paid by men in the enjoyment of incomes of £4OOO to £7OOO a y<?ar. That is contrary to the canon of taxation which requires that all taxation shall be equitable; that is, In proportion to the taxpayer’s capacity to bear, or to the benefit he receives from the State, which is the same thing. This is fundamentally just. The breakage of the rule in many, very many, cases that have been cited is not merely unjust, but goes to the extreme hardship of injustice. That is admitted on all hands. Also is it admitted that the New Zealand system which inflicts this injustice is the most inequitable on the face of the earth. It is well understood, besides, that many shareholders subjected to the extreme of injustice by this most inequitable of all the taxation systems of the civilised world, are of small means. Their shares often represent their life’s savings. They are the provision for their old ago in the time when their strength is exhausted, the result of the thrift which ©very economist inculcates on the world. They are quite ready and willing to pay their fair share of the taxation, oven to the abnormal degree demanded by the war. But they abject to being the greatest sufferers even to bankruptcy, while rich men pay amounts of which they hardly feel the pressure. “In New Zealand,” as the secretary of the Wellington Chamber of Commerce put it, “the system is directly to tax the company, dividends on investment not being included in the assessable incomes of individual shareholders.” If the shareholder has an income from individual exertion and an income from dhare dividends, he pays on the first the tax assessed equitably on individuals which is within his capacity, whereas ho may pay on the second the tax intended for the largest companies, which is crippling to his means. If the shareholder, having invested all has savings in shares, has no other source of income in the time of his old ago, he may be hit harder than any taxpayer in ail the other categories of taxation, even to the permanent loss of a large portion of the modest income from his savings. Moreover, the company system takes a great share in developing the industries of the country. This system of taxation, therefore, is not only inequitable—contrary to the immutable law of taxation, justice—but it penalises thrift by the severest penalties, and regards any attempt of selfreliance to develop the resources of the country as an offence to be punished by very substantial fines.

About this there is bo difference of opinion. The fact is accepted by all, from the small man who pays this tax, which is unjust to the taxpayer, is a hindrance to thrift, and treats co-ope-ration to develop the public resources as a conspiracy against the State, to the Minister who imposes it. The deputation representative of the business men of the Dominion brought this fact out very clearly on Monday at its interview with the Minister for Finance. The plea of the Minister, to the deputation which put the question of adjustment before him with a courtesy equal to its skill, was frank. The money is bad) wanted, he said in effect, and it is very difficult, if not impossible, to make any adjustment without substituting for the anomaly avoided some other anomaly equally reprehensible, and without endangering the revenue to a serious extent. This really means that this defect of the taxing system was not suspected so long as the tax was small and easily endurable, the discrepancies being almost academic. But that the weight of the war taxation coming suddenly on the safety valve of endurance, has caused an explosion. And this jams the taxing department into a difficult corner, at a very inopportune time, its hands being ■filled with a hundred other things various and complicated, all requiring dos-

est attention and most rapid decision. The situation of the taxing department is, we can readily realise, the situation of a man who, being stopped in a hurried career by the sudden yawning of a pitfall right in front, finds himself in a maze of pitfalls through which he can see no firm track. Add that the man’s business is so pressing that he must got through on a firm track, and the parallel is complete. The only firm track for the taxing department is the path of justice, which happens also to be the path of expediency in encouraging individual thrift and the collective development of public resources. The English and Commonwealth schemes wore mentioned as superior; the first providing a refund to shareholders of the difference between the individual and the company taxes, the second exempting dividends from the company taxation, leaving the individual shareholders to the incidence of the ordinary taxation common to all individual taxpayers. The deputation offered a third alternative (the suggestion of the council of the Wellington Chamber) to allow company capital a fair return before making the taxation assessment. The Minister mentioned various difficulties in the way of ab three, owing to the possibility of sharp practices on the part of companies, and the difficulty of reaching absentee shareholders. On the latter point a member of the deputation suggested that there is provision for returns of absentee shareholders under the Act already. Obviously it seems feasible to add to this the collection of the taxation from the companies. The matter is thus brought to focus, in the light of justice on which the deputation chiefly and respectfully insisted. The possibilities of sharp practice for defeating the taxation remain to be considered in the adjustment necessary for keeping the revenue at the level on which the Minister's finance depends. • Is it too much to suggest that the experience of the Taxing Department, assisted if necessary by that of business exports from outside (which can be had without infringement of the secrecy to he safeguarded under all circumstances), is equal to the task of devising the necessary safeguards against practices which do not commend themselves to the majority of the interests in question? No doubt the difficulty is considerable. On the other hand so also is the present admitted injustice, borne attempt at betterment is clearly imperative, and should he attempted even if there is little prospect of the betterment reaching perfection. This is practically what the Minister has undertaken to consider. We wish him every success in the work of substantially widening the area of necessary and just relief ho has already applied.