TAX ON INCOMES

Te Awamutu Courier, Volume 66, Issue 5600, 2 April 1943, Page 4

TAX ON INCOMES

ASSESSMENT METHOD LIABILITIES INCREASED (No. 2) There can be no justice at all in a principle of taxation which singles out certain persons for a penal tax well above that being paid by other persons with a similar income (says a statement by the Associated Chambers of Commerce of New Zealand). This is what is done by the provisions ■bf section 6 of the Finance Act, 1942, Which alters the basis of computation of the amount of income tax payable by taxpayers who derive both assessable and non-assessable income.

Apart from the fact that the nonassessable income involved (in so far as it repreesnts company dividends) will, in most cases, already have been subjected to teh maximum rates of company taxation (14/0 2-3 d in the £1) the incidence of the new method of assessment is illogical, and certainly does .not fit in with the Govemfhent’s contention that those who receive non-assessable income are better able to, bear the .weight of additional taxation. In regard to the set of examples already given, the flolowing table shows how, by reason of the altered method of computing the tax payable in cases where the taxpayer has dprived non-assessable incomb, the liability of the persons concerned has been increased. EXAMPLE A Taxable income, £500; income tax payable on altered basis, £l4l 13s 4d; income tax payable on last year’s basis, £l2O 16s 8d; increased amount payable, £2O 16s Bd. EXAMPLE B Taxable income, £1000; income tax payable on altered basis, £4OB 6s 8d; income tax payable on last year’s basis, £325; increased amount payable, £B3 6s Bd. EXAMPLE C Taxable income, £1500; income tax payable on altered basis, £800; income tax payable on last year’s basis, £612 10s; increased amount payable, £lB7 10 s. EXAMPLE D Taxable income, £2000; income tax payable on altered basis, £1309 3s 4d; income tax payable on last year’s basis, £979 Ils 8d; increased amount payable, £329 Ils Bd. EXAMPLE E Taxable income, £3000; income tax payable on altered basis, £2284 3s 4d; income tax payable on last year’s basis, £1754 Ils 8d; increased amount payable, £529 Ils Bd. CAPACITY TO PAY On the other hand, however, the liability of those persons whose income is wholly non-assessable has not been in any way affected, notwithstanding that the amount of their income—and therefore their capacity to pay—is the same as that of the taxpayers whose liability has been substantially increased. But the vital consideration is that the non-assessable income in question has already been subjected to its full measure of taxation in the hands of the companies concerned—in most cases at maximum rates—and it is entirely wrong in principle that such income should again be subjected to taxation in the hands of shareholders. If the shareholder is to be taxed then the company should be exempted, or if the company is .to be taxed then the shareholder should be exempted. The revenue should not, however, seek to apply the rule both ways.

The re is no argument that can be put forward in justification of the differentiation that is made by the present taxation provisions between different people, it is not to be denied that war conditions require heavy taxation, but there is a world of difference between (1) the weight of taxation and (2) its incidence. What is of national concern is that the incidence of taxation, even when the weight of it has to be heavy, should be as equitable as possible, and should riot discourage individual effort and national production.

The new basis of taxation has a crippling effect on business people in particular. The bulk of these are men who are experienced in trade and whose services are valuable. Men retired from active business and who recommence activities solely on account of the war will be taxed up to 18s in the £l,-so that a man earning £2OOO is left with £2OO, Which is not much more than the allowance under the Social Security scheme to people who are unable to work at all-

It seems clear that the full effect of the altered basis of assessment was not fully understood by members of Parliament when the Act was passed by the Legislature last year. A number of them have since expressed their surprise at the effect of the legislation, and many representations have been made to the Associated Chambers by taxpayerss who are only now realising the implications of this highly complex provision in last year’s Finance Act. It is hoped that the interval between the adjournment of Parliament and its resumption in May will be utilised by the Government in framing legislative amendments to adjust the unjust position that hah been outlined.