INCOME TAX.

Star (Christchurch), Issue 12285, 6 April 1918, Page 8

INCOME TAX.

REFORMS NEEDED.

The Progressive Scheme as Applied to Companies.

Striking Inequalities.

(By H. F. WioriAM

No. 3. I have found some difficulty in obtaining information as to what is being done in other countries, but no doubt tbo Government has access to it. According to Whitaker, 1917, tbo maximum income tax in Great Britain, including supertax, is 8s fid in the ,C. and is not reached till the iucou. is £IO,OOO per annum. And in addition to income tax there is a war profit tax of 80 per cent. I do not know what the income tax is i n the United .States, but according to a. recent cable Air J. I). Rockefeller has to pay seven millions a year in taxation out oi lus income of twelve million.

Obviously the object aimed at is to make each individual liable for a paypent commensurate with his actual income. The next question is whether practical means can bo designed to that endBy making the companies act practically as tax collectors the Income Tax Department is saved a mass of detail work. Ibis is in fact the only ground on which the present system can be supported. THE DEPARTMENT'S ABILITY TO INVESTIGATE. Now, I want to remind you that the Government departments in New Zealand do not shrink from minute detail when its employment is needed for the public welfare, I have a town garden, containing about a dozen fruit trees. I don't sell the fruit (tbo birds get most of it), yet I had to fill up a form specifying two cherry trees, three pears, two apricots, etc. Some years ago the Land and Income Tax Department itself asked me for a return of my shareholding in all companies. The object was to find out to what extent I was interested in land through my holding in companies, and to assess me for my share of progressive land tax accordingly. Most of the companies I happened to be interested in held little or no country land. In some cases my land interest arising from these shares was infinitesimal, yet I had to make out my return, and that return had to be checked by the Department, and my land account debited with the fractional part, which represented my proportion of the land holding of each company, And I am only one of the thousands of investors whoso land accounts must fill many ledgers in Wellington. I am not complaining of being asked for this return. It was an honest attempt to carry out the policy which I am now advocating, namely, to make the individual and not the company responsible for progressive taxation. Personally, I think the system employed was unnecessarily cumbersome, but that is only a matter of opinion. I have referred to the subject in order to ask why the Department, in attempting to adjust progressive land tax equitably, did not give its attention to a, similar adjustment of progressive income tax. NEW METHOD SUGGESTED. Now I will make a suggestion, and attempt to outline a system by which, as 1 think, the burthen of progressive income tax' might be fairly apportioned. I would in the first place make the companies liable for a “flat’’ tax on all income earned, whether distributed or not. Such “flat” tax might be Is or 2s in the £, or such other rate as the Minister of Finance might suggest and Parliament agree to. Next, I would compel any shareholder in any company whose total income from company dividends, bonuses or other distributions exceeded a fixed sum to send in a return of same. The minimum sum rendering a return obligatory might be £IOO or £I2OO, or again such sum as the Minister and Parliament might decide. . The object of fixing a minimum is to widen the mesh of the taxation net and allow thousands of small shareholders to escape. The progressive taxation of such holders would not be worth the expense of collecting. Many would not be liable at all, and others only, for trifling amounts. The Department would have already received the “flat” rate on their dividends. The dividend returns of shareholders would be added to their ordinary income tax returns, and be taken into account in assessing their progressive taxation, but they would receive a rebate equivalent to the flat rate already paid by the companies iu respect to their dividends. In support of the above proposals 1 claim; That they ensure that progressive income tax shall be paid in accordance with the actual income enjoyed. That the present numerous anomalies in connection with company taxation would be swept away. That if it were shown that any loss of revenue would result, it could be equitably adjusted by a further .extension of the progressive rates on the higher incomes. And that by omitting the unprofitable task of worrying small shareholders for returns, the work of the Department would not become unduly cumbersome. There is just one other point 1 desire to ihake on behalf of the. companies. The present system is practically a tax on thrift. The company is taxed 7s fid in the £ on its turnings whether it distributes them in dividends or places a portion of them to its reserve. It is very desirable in the national interests that companies, like individuals, should be encouraged to practise thrift, and under my proposal earnings carried to reserve would only bo liable for the “ flat ” tax, unless and until they were distributed amongst shareholders in the form of bonus shares or allotments. I have confined my remarks to the progressive income tax as applied to because it is a branch of our taxation syftegx regarding which 1 happen to hold strong views, hut 1 hope the whole system of the taxation xmedi'-d in war time will bo looked into, including land tax and the question of taxing war profits. Sir Joseph Ward is about to leave for England. Ho has told us that it will not be necessary to impose fresh taxation, but I hope he may be prevailed upon to make necessary changes in tlv incidence, so as to make it more equitable-