COMPANY TAX

Southland Times, Issue 22962, 7 August 1936, Page 8

COMPANY TAX

HARSH OPERATION CLAIMED SMALL INVESTOR HIT (From Our Parliamentary Reporter). Wellington, August 6. The taxation proposals revealed in the Budget, especially the projected increase in the income tax and the restoration of the graduated land tax were strongly criticized by the Rt. Hon. J. G. Coates (Nat., Kaipara) in opening the Budget debate in the House of Representatives to-night. Mr Coates referred to the table quoted by the Minister of Finance (the Hon. W. Nash) comparing the rates of income tax in New Zealand and Great Britain. That table, Mr Coates said, gave only part of the truth, as it dealt solely with the earned income for the individual. When it came to unearned income the New Zealand rate was the earned rate, plus 33 1-3 per cent., and the British rate the earned rate plus 20 per cent. There was an enormous difference in the tax charged on companies in Britain. The principle was that the tax should be charged according to the size of the person’s income and not because of the source from which it was derived. British companies paid a tax only on their undivided profits, dividends being taxable in the hands of the recipients. In New Zealand the small investor was taxed almost 10/- in the £ if his money was invested in a large company enterprise. With the graduated land tax also payable by New Zealand companies, in addition to the company tax, which worked out at 7/6 in the £, most large companies would now have to pay the equivalent of from 8/6 to over 10/- in the £ of their earned income. That would make it difficult for many companies to carry on, and would prove almost an effective bar to new enterprises. Extreme Rates.

It had been expected that the company tax imposed during the depression years would be lightened, but instead it had been increased to extreme rates, said Mr Coates. The inference was that extreme rates were to be a permanent feature of the Dominion’s public finance.

“The capital of a large scale company enterprise is mostly provided from a large number of small investors,” Mr Coates said. “They expect a substantially higher rate of dividend than the interest obtainable on Government and local body loans. In addition to the dividend rate, the company must earn something to put to reserve each year. Under the new Budgetary taxation, before a company can pay this dividend and provide for its addition to reserves, it must earn an almost equal amount to pay the income tax of 7/6 in the £, and the land tax of 6d in the £. In most cases the set vices which the company is organized to give will be made too costly by this scale of earnings.” Mr Coates was called to order by Mr Speaker (the Hon. W. E. Barnard) for reading details of his taxation criticism.

He replied that he was quoting from figures which he had prepared, but he would conclude by saying that the taxation proposals would operate harshly on a great number of people. He quoted from a telegram he had received stating that the graduated land tax would have serious effects on church finances, as increases in some cases were estimated at 600 per cent. He appealed to the Prime Minister (the Rt. Hon. M. J. Savage) to arrange for a hardship clause with the taxation.