The Taranaki Herald. DAILY EVENING. THURSDAY, AUGUST 9, 1917. INCOME-TAX.

Taranaki Herald, Volume LXV, Issue 145903, 9 August 1917, Page 2

The Taranaki Herald. DAILY EVENING. THURSDAY, AUGUST 9, 1917. INCOME-TAX.

Sir Joseph Ward’s proposal to exempt the war loan debentures from payment of income-tax is meeting with a lot of criticism, some of it rather wildly directed under the assumption that there are large numbers of wealthy men with incomes of £6400 a year and over who will take advantage of the war loan to avoid payment of income-tax. It is urged that 44 per lent, free of income-tax is equal to six per cent, or even more; to the wealthy man, and the sug-

gestion is made that wealthy men will realise other securities for the purpose of investing in war loan. Possibly that will happen, at any rate the Finance Minister wants all the money he can obtain from them, hut it is a mistake to suppose that there arc a large number of wealthy people who will gain the full advantage of a tax-free investment. In the year 1914-15, the latest for which returns are available, there were 65 individuals and firms and 212 registered companies with incomes over '£sooo a year. Regarding the registered companies it may he pointed out that the. new incometax is likely to press very heavily indeed upon many of the shareholders, who perhaps derive the whole of a small income from investments of this nature. These small shareholders might be exempt irgm .taxation .-if

they received their dividends without deduction of income-tax paid by the company, but when the latter has to pay 7s 6d in the pound income-tax on its net profits the small shareholders have really to pay that rate. For that reason the argument of the critics cannot apply with much force in the case of registered companies. Of the 65 individuals and firms with incomes over £SOOO a year a large proportion probably is firms in which two or more partners would share the income, (bus bringing the individual incomes of over £SOOO a year down io very few indeed. Apart from registered companies therefore the number of income-tax payers who are likely to be able to profit largely by realising other investments to purchase war loan debentures is very small, and, as already pointed out, registered companies are only aggregations of individuals, very many of whom would be exempt from payment of income-tax except through the companies in which they held shares. Then an individual with £50,000 invested so as to bring him 5J per cent., and paying in-come-tax, would lose by investment in the war loan. This again limits the number who would profit by realising other investments to take, up war loan. It must be remembered also that the war loan debentures will have a long currency, and it docs not follow that the rate of income-tax will be maintained at the. now proposed high rate during the whole, of that term. If the rate falls the advantage of the war loan as an investment will decrease. Further it is at least possible that the value of money will increase, that next year higher rates of interest will be obtainable, in which case the war loan debentures wil prove a less attractive investment. If Sir Joseph Ward had made the terms less attractive to large capitalists he would not obtain the money lie needs and must have. It is possible, however, that the alternative of five per cent, debentures subject to income-tax would appeal to large numbers of small investors.