TAXATION.

Timaru Herald, Volume XCVIII, Issue 18084, 19 November 1924, Page 6

TAXATION.

DISCUSSED BY CHAMBER DE COMMERCE.

Address by Mr. E. J. liollostoii, M.I

At tbs meeting of the South Canterbury Chamber of Commerce last night Mr E. J. I’ollcston, M.P., gave an informative- address oh the subject of the report of the Taxation "Commission;

MR ROLI/ESTON'S REMARKS. Ml- Rollcstcm rsaid that the Com-, mission set up to inquire into taxation in May of this: year was the .second commission on the same subject within the last three years; and excepting the chairman, who was a Judge of the Supreme Court; three out of the, four members of the 192-1 commission had been members of the piovious Taxation Commission which sat in 1922. The report of the commission of 1924, as might therefore be-expect-ed, did not ‘.differ very from that of the Committee of 1922. It would have been: bettor had the commission of 3924 been wider in -its scope and contained in its personnel representatives of other' classes besides the commercial community. As a Result the evidence offered was largely that of one class of taxpayer, and necessarily the conclusions of the commission were not as valuable as they might have. been.... Taxation was, however, a question of conflicting Ancones, and those who had thought tlie matter out for.themselves would not necessarily accept ’-the" conclusions oF the commissioners. But these conclusions, whether agreed with or not, wore well worth consideration arid" dischSsion. v : .The .findings, of, the commission caino under two headings-—those dealing Tilth the question of income tax, and those dealing with -the question of land tax; In regard to - tlie income tax the most •important question deckled was tliej question of the incidence,of the tax on companies. Before the report of tho commission was presented ft. was knojyn that , two of -the Commissioners were strongly in favour- of-.,the existing method., of taxation, which was a graduated tax on the income ot the, com pan v, the shareholders receiving ‘their dividends "free.-of-t-ax.-- Another, member was. .known to bo a strong opponent of the existing.system and the opinions of tho chairman all d the remaining member were not known . _lt was noteworthy that the finding of the commission was 'ufiahimous ..that r. tho,. preseut incidence of taxation oil coijnpalifeH' was 'wu’o m»* ; . , 4,n. - dealing, VVith this matter tho Commissioners pointed out that there was no data on which to base anv estirttates as to. liow tho change in tho incidence of tax on companies would affect'-‘tlie fax-on individuals, and they accordingly recommended that such data should be. obtained at once, and if ft’ were'found that tho change in the system were going to involve any loss in revenuo they recommended a moderate flat rate of tax oh all the profits of- -a company in addition to tlio tax on tho individual. The‘figures .showed that nearlv seventy per cent.' of tlie total income tdx £(?iiectod last year, liamelv, £3,781,532, mas, collected,.from companies. Following on this recommendation they further recommended that in order to put tin* :;evad|a£ite<J- ; p*3u.cii>io_ properly into practice, every Ifi'dividuai’s income, from all sources (except ffix-ffeo’war'Toilhs) fdrauld' be- broughttogetlier in one amount, so that tho graduated rate of tax, that applied to tho ’ whole income mipjlit be,. fixed. ■Under tbo present -law an jricljvidiiah was in receipt of any tiix-frde income, that income was not counted in his Total ■ income, for. the sing .fax'; 'and’'consequently' life - graduated:. rato was necessarily less than it yvould’ have heei) liad all his income' beeii aggregated; .'Therefore under the-pre-sent system'wealthy'people, could invest their money in tax-free war bonds or in" Company of Bank shares, with tlie result" that the income they-re-ceived was' tax-free,' aiid they edntnhuted little, or nothing. by way of income tax. Another reeoihmcnd'ation was ih 'regard .to the '’taxation" of income frbm debentures.' "Hiflierto 'There had "beeii a niaximuiiT rate .of income tax dirtMil-' conic derived froth debentures'""of'local bodies, namely, 2.s Gd Jii the £l, and from companies 3s iii the £1 (increased last, year to 4s ‘6d), ’whereas the maximum rate of inoojno tax oii inebnie derived from other sources was and is at; a., jn.ueij..higher rate. • .The Commission recommended that the favoured position, of local body and company debentures slio.tikl be abolished imniediatejy and that all income should pay at the samo rate irrespective of tlie sources from which it. was derived. , A further recommendation was made that all,State.and' Public Body trading and public utility concerns should bo charged ipcpme and land., tax to the same extent as private enterprises. At tho present time most pf tho Government and public! utility Departments were assessed for income tax, e.g. the Public Trustee, the State Advances, tho Government Life Insurance, tho State Eire Insurance, were all assessed for iucomo tax. Apparently tho only exception' is the State Coal Mines, which is not charged with income tax. In regard to the assessment of local bodies for income and land tax it should be noted that as a set ofF to their freedom from land and income tax they had to exempt all Government properties from payment of . rates. If municipal trading concerns were- liable for pay-., meut of income tax it would mean tliatf such tax would have to be paid by way of rate, as tho profits made by municipal trading concerns went in reduction of rates. s - On tho question of land tax the Commissioners, without giving any detailed reason, merely recommended the abolition of the land tax and the abolition of the graduated tax, and they sug- ! gested in its place a graduated income tax on all income from land. To get over the difficulty which would arise where land was lying idle and unproductive, they recommended that in the case of-such land the Commissioner of Taxes should be empowered to assess the net income at 5 per cent, on the capital value and charge income tax accordingly. In considering this question of land tax it had to bo remembered that according to the. latest figures about 7-lGths of tho land tax collected was • collected from city-pro-perties, and 9-16ths from country properties. Tho present law was that land in the cities paid only land and income tax, while land held for fanning (unless it was leased) was subject to land tax only: As to tlie practical effect of

■ii,ln's recommendation, the land tax assessed for tho last year was roughly ono and a half millions, whereas tho income tax from farm lands in any one year would not exceed £250,000; therefore the abolition of land tax and tho substitution of tho income tax would

at tho present time involve a loss of revenue of IJ millions, which would have to be made up by an increase of the iucomo tax, ol- by some indirect taxation.

In support of the land tax it •was urged that there was no such thing as absolute ownership in laud, .or that the State retained an interest in all land; and Uie large increase in the unimproved value of land in New Zealand was quoted in support; of this. Thus between 190 ft and 1914 the unimproved value of land in Now Zealand increased by 01. millions, and by a further lid millions net ween 1914 and 1922. .11 was argued that the State was entitled to levy a tax in respect of this increase, which it was said was com-munity-created. There were no statistics to show the number of freehold owners in New Zealand si net' .1907, when there were 128,019 freehold pro-

prietors. 'Evidence---was- given, M°ro the Commission to show that thieel'ourths (which was probably on tno high side) of .•tho freehold, proprietors in New Zealand did not pay any tux, by reason or the exemptions which tno law allowed. The fexeniptions relerroU to were first of all an exemption of £SOO oil all. property up to an .unimproved value of' £l. 000, fiisappea-iu ng- altogether at £2500, and then there nas an exemption by. which mortgages up to £IO,OOO could be- deducted. / Dm, operations of these exemptions rendered a large amount of land in .Now 'Zeah'nd free from., tux. and• the higher the mortgage exemption was Intide, the more lands were exempted. Further the mortgage was over the capital value oT the laud.'; whereas the tax was assessed only on the unimproved value. In order to get a proper and just land tax it' seemed that, there should be ho •xemptions at all, just as there were rib 1 exemptions „in tlie rating System. It did not follow that because hind was mortgaged that the owner was. necessarily in poor circumstances; it very often paid properly owners, .especially city .men, to put a' mortgage' tin their property and make use of tho money borrowed to better advantage; Then there was always a risk of tax - being evaded by, mortgages being . arranged for The. express purpose of obtaining the deduction. Under the . law, as framed in ‘lß9l, this could not be done, because the mortgagee : had to ‘ pay the tax '."oh' 'his mortgage, -but now the morgagee tax had been done away with. Then tlie existence of the land tax was a cheek on-land speculation.: Tho graduated, land- tax was introduced, to compel subdivision. It had never operated as a revenue producer. Tho .Commissioners said-that tho necessity for it had-.how disappeared but' thoro was nothing to show that if it were abolished theevils.of..land aggregation would not re-appoar. " Then another point was that as the .land .tax. had been in force for over thirty years, all •purchasers had -bought with J ho knowledge of this tax and presumably made alfowahco for it. in ..computing their ,purchase money. If this tax.were remitted it would- mean a gift .of. .so.,much; to these purchasers. Altogether . there Wtire' strong : .arguments :»gainst.:.the abolition of the land tax, and .it was 'safe to say that; there was-no chance in the near future of tin's recommendation beiirg'harried int ore-fleet y- -- - - At tho conclusion of tho address an, Yritefestthg 'discussion took place;--wheti .various. pqin<g'„wdrc i 'raised and elucidated. Mr Rolle.ston was warinly'edif-’ gratuiated, -..upon his address and heartily thanked for it.