67
6
(c) One year's experience of the working of the present Ordinance had disclosed inequities which it was desirable to smooth out and loopholes
for evasion which it was desirable to close.
6. To reduce the possibilities of evasion and ensure equal incidence we the of we first considered the advisability of recommending the complete repeal of the present War Revenue Ordinance and the substitution therefor of a full Income Tax enactment; we decided, however, by a majority that in view of the opposition which the suggestion to introduce Income Tax had called forth in 1939 we would -re-affirm in this regard the recommendation of the original War Revenue Committee. We decided to appoint a Sub-Committee composed of Mr. A. G. Clarke (Chairman), Mr. E. M. Bryden. Mr. L. Kadoorie and Mr. C. van Langenberg to examine in detail the present War Revenue Ordinance with a view to smoothing out its inequities This Sub-Committee held twelve and increasing the yield from War Taxation. meetings and presented a most comprehensive report which was gratefully adopted by the full Committee and which formed the basis for our conclusions and recom- mendations. Our conclusions have been incorporated in a draft War Revenue Bill which is attached to this Report as an Appendix.
7. We felt that the charge of inequitable incidence could not be avoided unless we devised some means of taxing the one broad source of unearned income at present untaxed-namely, interest on loans and mortgages. We have therefore i devised a scheme for the taxation of certain classes of interest which we have This included in the draft Bill under a new Chapter entitled "Interest Tax".
tax is practically limited to interest on mortgages, bills of sale, debentures and loans made to corporations or firms who are liable to Profits Tax; we found that the yield to be expected from taxing interest on bank fixed deposits, savings bank accounts, etc., would be too small in relation to the cost and trouble of administration to the banks concerned.
8. With a view to increasing the yield from Business Profits Tax we con- sidered that the exemption limit should be reduced from $10,000 to $5,000 and that the limit for the lower rate of taxation should be reduced from $100,000 to $50,000. The reduction of the exemption limit would greatly increase the number of firms paying this tax and would minimize the incentive to the splitting of businesses. We considered the question of whether a loss by a business or corpora- tion in one year should be set off against profits in succeeding years but in view of the temporary nature of the Ordinance and the urgent need for revenue we have not recommended such a provision. For similar reasons, we consider any pro- vision for depreciation in respect of the expiry of leases to be undesirable. We have not recommended that payments such as charitable contributions and donations to war funds or expenses incurred in connexion with Air Raid Precaution measures should be exempted from Profits Tax.
9. We came to the conclusion that in view of the rise in the cost of living some relief should be afforded to those payers of Salaries Tax who have wives and children. With this object we have recommended that the scale of allowances for a wife and children should be revised as follows:-
Now.
Recommended.
Wife
$2,000
1st child
$1,000
2nd child
$1,000
3rd child
$1,000
4th child
$1,000
$3,000
$2,000
$1,000
500
500
We consider, however, that no allowance should be made for children in excess of four, or for dependent relatives. At the same time we have recommended that the lower rate of Salaries Tax be brought into line with the lower rates of the other War Taxes.