TAXATION.

Waikato Times, Volume 98, Issue 16096, 20 September 1924, Page 8

TAXATION.

ENGLISH AND N.Z. SYSTEMS. RADICALLY DIFFERENT. m. It will be gathered from what already has been written on this subject that there are two radical differences between the English system of income lax and the New Zealand system. In England the tax is purely an individual one, and is levied accordingly, companies being regarded as the property of their shareholders, and each shareholder being responsible, at his rate of graduation, for the taxation of his share of the profits. The only tax levied on companies is that on their undivided proiits. As these profits could not be taxed in the hands of the shareholders, the charge obviously must be levied through the company, ultimately, of course, to be deducted from the shareholders' accruing profits. It already has been explained iiow shareholders' dividends are taxed and how each shareholder pays according to his graduation as an individual. In New Zealand, on the other hand, a company is treated as an individual and its profits are taxed as if they all belonged to an individual, with the exception that the company receives none of the tax free allowances and concessions extended to the individual

Taxing the Small Man. If an individual were entitled to all these allowances instead of paying at the rale of, approximately 9*d on a taxable income of £4OO, he would pay at the rate of Id. An income of £7OO, instead of paying Is would pay 5 l-8d; an income of £IOOO, instead of paying Is 2d would pay 10£d; an income of £ISOO, instead of paying Is Gd would pay Is Id, and so on through all the stages of graduation. But under the present system of company taxation, the shareholder, even if his income is below the exemption of £3OO, does not receive his dividend until it has been reduced by the amount of taxation the company has been compelled to pay, in the case of companies of any considerable size 5s lOd in the £. It has been shown beyond all dispute that the company tax is not borne by a " few wealthy people, but by a large number of people of moderate and small means who would be taxed very lightly, if taxed at all, were the English system in operation here. The other great difference between the English system and the New Zealand system is that while there are no tax free nor lightly taxed investments in Britain, there are a very considerable number of such investments in New Zealand, enabling people of large means to escape their adequate share of taxation.

A First Principle. It is considered important that each individual should be taxed upcyi the whole of his income from whatever source it may be derived, and to enable this to be done it is necessary that each individual's income from all sources should be brought together in one amount and that there should be no difference in the rate of tax upon income derived from different sources. In New Zealand there is no method of aggregating the Income of an individual for the purpose of determining the rate of income tax he should be charged. Apropos of this the British Royal Commission on Taxation, which sat in 11)20, made the following pronouncement: "We are satislied that any attempt to measure taxable capacity by a system that is not based upon the amount of the income—by a system that looks to the way in which an income is earned, to the circumstances in which it is received, to the hours of labour or to the conditions under which the work is performed —would cause great injustice as between one taxpayer and another, and would lead to indefensible results." The excess proiits tax and the corporation proiits tax were the only exemptions to the principle laid down in this pronouncement. The excess profits tax was found in practice to be wholly unsatisfactory in its operation and was speedily abolished. The corporation tax lingered a ilittle longer. Originally it was a tax of 5 per cent, on the net earnings of companies, with an exemption of £SOO, and with a proviso that the tax should not exceed 10 per cent, of the balance of the proiits after deducting fixed interest or dividends payable to debenture holders and preference shareholders. These rates' last year were reduced by one-half, that is to 2* per cent., and 5 per cent, respectively, and now the lax has been abolished altogether. Denounced by all Parties. Though the corporation tax, after being denounced in turn, practically by all parties, is now repealed, it may be of interest to add a line or two to its obituary, seeing that with the excess profits tax it constituted the only approach in the English system lo tbc New Zealand system. Of the total amount collected by way of income tax in Britain something less than (5 per cent, came from this tax. Mr Baldwin, who was' then Prime Minister and Chancellor of the Exchequer, in his Budget speech in (he House of Commons on April 15 last year, indicated its impending doom. "1 fee!," he said, "that I must make some change in the Corporation Profits tax. Everyone admits that this is not a good tax. Many people think it bears exceptionally heavily on enterprise and industry. I cannot give it up entirely, but I propose to reduce it by one-half, reducing the rale from Is to 6d in the £ in respect of profits arising after June 30 next." Sir Robert Home, Chancellor of the Exchequer in the former National Government, in a speech reported in the London Times of April 5, 1023, stated that he strongly advocated the repeal of "that most unjustifiable tax, the Corporation Profits fax." Since then the Labour Party has assumed office in England, and one of its first important steps in the financial field has to remove from the Statute Book a measure which both Liberals and Unionists have Renounced. It is 1 evident, therefore, that this comparatively slight departure from the individual system of taxation had offended .all parties. New Zealand's Isolation. New Zealand is pursuing an exactly opposite course hi regard In the, income lax from the one that has already commended itself to ail the parlies in England and !o all the parlies in other British countries. Here in ih'' financial year 1920-21, G3.1l per cent, of Ihe income lax collected was obtained from companies, in 1921-22, 72.00 per rent., and in 1922-23 GG.I3 per cent., an average of GG.SS per cent. The llgures fur the financial year ended March •'!) last are not yet available, i but they probably will show g somewhat smaller proportion of the income tax obtained from companies, there having been ;i reduction in the rate of this tax and a large increase

in the volume of Customs revenue. This, however, will not affect the principle at stake, any more than the comparative insignificance of the corporation profits tax in England lessened the indignation of any of the parties at the character of the imi post. Before proceeding to show I the practical effect of this country's 1 I persistence in the company tax, it j may be well to mention that no other country in the world is employing a similar system. In Australia there 'are two income taxes —the State Tax and the Federal Tax. All the States charge companies on a flat rate, Victoria at Is in the pound, Western Australia Is s£d, Tasmania Is 6d, South Australia 2s 3d, New South Wales' 2s 6d, Queensland 3s 7 l-5d public utility companies, and 4s 9 3-5 d other companies. The diviI dends in all cases are exempt from State tax in the hands of the shareholders. The Federal income tax is a flat rate of Is in the £ on all company profits, but Slate tax is deducted from profits. Dividends are exempt from Federal taxation in the hands of shareholders, unless, if included in their assessment, they would pay at a higher rate than Is in the £. In that case the tax paid by the company is credited. This clears the way for an examination of the effects of the New Zealand system.