INCIDENCE OF TAXATION

Timaru Herald, Volume CXXXVII, Issue 19807, 24 May 1934, Page 7

INCIDENCE OF TAXATION

WEIGHT CARRIED BY j MANUFACTURERS i COMPARED WITH CUSTOMS ON IMPORTS The New Zealand Manufacturers' Federation in an official statement says: “We are continually being told that the price of imported goods is increased by the Customs duty. But it is not always realised that substantial portion of the price of Dominion goods also is accounted for by taxation. Only the difference really represents the amount of protection enjoyed by the Dominion manufacturer. Consider a typical case. Suppose an imported article cost 11/6 f.o.b. England. Freight is 1/2, and exchange is 2/10}. Customs duty (at 20 per cent.) is 2/6}. This makes a total landed cost of 18/1. Now consider a similar article made in New Zealand and sold by the factory at 18/-. Imported material has at least paid 3 per cent, primage. Material produced in New Zealand, when the manufacturer buys it, has already paid income-tax, land-tax, wages-tax, and other unemployment taxes, local rates, etc. • Assuming 8 per cent, (on turnover) earned by the firm supplying this material, its income-tax, land-tax and local rates cannot amount to less than 3 per cent, on turnover, while unemployment taxation represents another 5 per cent. d'hote: Every item of production-cost, including “overhead," represents wages or other form of income—sooner or later—to somebody—and bears unemployment tax.) The cost of the New Zealand material thus includes at least 8 per cent, paid in taxes. Assume that the material costs our manufacturer 9/- in respect of the particular article we are considering. This is quite a typical case, in which 50 per cent, of the factory selling price of the article is accounted for by the cost of material. This means that Bid has been accounted for by taxation, up to the point where the material enters the factory. Now the manufacturer in turn is obliged to pay income-tax. land-tax, local rates and various minor taxes, which in aggregate amount to approximately 3 per cent, on the factory price of the finished article. This works out at 6}d. Moreover, his wages bill, and also every other item of pro-duction-cost and profit, represents either wages or some other form of income—sooner or later—to somebody —and so pays unemployment tax at 5 per cent. This is 5 per cent, of the factory price of the article after deducting the cost of material. In our specimen cases, it is 5 per cent, of 9/-, or nearly s}d. Adding the 6ld general taxation and the s}d unemployment taxation, we have a total of 1/- paid in taxes during the “manufacturing stage.” We have previously found that 8-id was paid in taxation up to the point where the material entered the factory. Therefore, when the finished article leaves the factory (at a price of 18/-), it has been charged with taxation amounting in all to 1/811. The Comparison: Here we have two representative articles, one imported and the other made in New Zealand. The imported article is “landed” at a cost of 18/1, of •which 2/di is Customs duty. The article made in New Zealand is sold from the factory at 18/-, of which 1/8} is accounted for by taxation. Customs Duty or Cost. Taxation Imported Article— Paid. Landed cost .. 18/1 2/6} N.Z. Article— Factory price .. 18/- 1/8} But the matter does not end here. The Government’s revenue is actually greater when we buy New Zealand gods. How is this? Well, we must remember that, whenever we buy an article made in New Zealand, the whole of the workers’ wages, and also the whole of the industry’s “overhead costs,” are spent in New Zealand. This means increased business for all kinds of retail shops—for trams—for railways—for picture theatres—for power boards—for almost every kind of business and industry in the Dominion. From the Treasury’s standpoint, all this increased business means additional revenue from taxation.