91

8.-5

W. GOW

Approximately ss. lOd. and 7 per cent, is 10 per cent. : you would have to earn 10 per cent, in the business. Whereas 6 per cent, earned in the investment only pays 6d. in the pound ; the same £10,000 invested in business must pay ss. lOd. ?—Yes. Mr. Weston: But 10 per cent, from a business to-day is not equivalent to 7 per cent, in 1914. Mr. Hunt: But that does not enter into it. Mr. Weston.] You are not getting the same interest on your money ? —(Witness) There are many of us not getting the same interest for our money, but I do not see that that has anything to do with, the question of passing on the tax. It does not matter what the tax is : it may be Customs duty, it may be a charge for services, it may be an increase in your expenses. But it is always passed on unless you are in such circumstances that, unfortunately, you cannot do it. There are such circumstances, but they are comparatively rare. Mr. Shirtcliffe.] Do you think that the income-tax as at present levied is a distinct discouragement to the formation of companies ?—lt all depiends. Theoretically it is, but when people propose to form a company they take all these things into account, and if they consider they will not get a decent return they do not form the company. Theoretically it is a discouragement. Of course, taxation is a discouragement to ail industry. As a matter of fact, people only form companies under such conditions provided that they satisfy themselves that they can, after paying tax, return a fair rate of interest on the capital invested ? —That is so. I cannot conceive of any one forming a company if they are going to get only 4 per cent. One would almost think that under the present system by which, income-tax is levied there would be practically a cessation of the registration of new companies ?—I do not know that that need be. Ido not see why it should be. When people contemplate forming a company the first thing they do is to sit down and calculate the possibilities of that company as an earning institution. If they satisfy themselves that even with the existing tax it will earn a reasonable amount they will form the company. Then there are possibilities, even under the present system of taxation, of earning a return ? — Yes, but they are limited. They have got to calculate upon the company earning 10 per cent, if they are to get 7 per cent, in dividends. Mr. Weston.] Most companies do ?- —Most companies do not. Mr. Shirtcliffe.] It may or it may not surprise you to know that since 1918, when the high taxation commenced, during the five years, there have been over one thousand, three hundred private companies registered ?—Yes. And 476 public companies. In the last year, 1922, in sprfte of the ss. lOd. in the pound incometax, there were 106- public companies registered, with a nominal capiital of over £11,000,000. From that it does not seem that the registration of companies is being greatly discouraged ? I do not think you can draw any sound conclusion from that, because you must assume what might have been registered if there had not been that heavy rate of taxation. That is mere guesswork. But one thing is quite certain —that if you are proposing to establish, a company you niust sit down and see what that company will give you in the way of a return. If you reckon that company can earn sufficient to pay the tax, plus a reasonable return of the money to the shareholders, then the company will be formed. If you discover that it is impossible to get a sufficient profit in order to pay tax and have a reasonable return, then you do not form the company. If the tax were twice as much, that calculation would still appily, but it would not prevent the formation of companies. There are many concerns where the tax is passed on. If there is a tax upon leather you will find it reflected in the price of your boots. Mr. Begg.] If there is a tax upon bootmakers' profits, does that increase the price of boots ?— Yes. The cost of living has increased, as far as the bootmaker is concerned, and because of that you must pay extra for your boots. Mr. Shirtcliffe.] All that I quoted those figures for was to suggest that in spite of the present system of taxation and the higher system of taxation that prevailed prior to 1919, that question you have suggested as to whether the company could pay the tax and still pay a reasonable dividend has been investigated in the case of over 1,300 private companies and 476 public companies ? —lt ought to have been. We will assume that they were men of business and knew what they were doing ?-—lf they were wise men they must have considered that the company would earn sufficient to pay the tax and make a profit for themselves. You remember that in the minority report of the Committee there was this passage : " The Commissioner of Taxes gave evidence that the proposed change in the incidence of company taxation would mean that the rate of income-tax on ail taxable incomes of individuals between £300 and £2,000 would have to be at least doubled." You said that the incidence of taxation should be altered as soon as possible. The money has to be raised, you see ? —What I said what this, though I may not be expressing myself in exactly the same words : I could not say but that it might not be possible at present to make the change, but, in the words of the majority report of the Committee, the change should be contemplated, and that an attempt should be made whenever it is possible to revert to the individual system. Let me put it in this way : If it were found that in order to effect the, change the taxation on incomes of individuals between £300 and £2,000 would have to be doubled, you would not suggest that the change should be made ?— -Personally, I think it would be just, but I do not think that any Government would venture to do it.