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Rh and another, and unless the rate of duty is kept low it tends to discourage enterprise and to lead to extravagance and evasion.

Excess Mineral Rights Duty.—This duty was imposed as a complementary duty to the excess profits duty and, broadly speaking, remained in force over the same periods.

At the time when the excess profits duty was imposed upon traders on the ground that they were making excessive profits from the sale of general commodities, it was pointed out that, owing to the war, owners of mineral royalties were obtaining largely enhanced royalties. It was therefore decided to impose a duty on these enhanced royalties in so far as the increase was due to an increased rate of royalty and the duty so imposed was the excess mineral rights duty. The excess royalty on which duty was charged was computed by reference to the royalty paid in the pre-war years, and the rates of duty were the same as for excess profits.

The duty applied to only a limited number of taxpayers, was easy to administer and presented very few difficulties in practice. The yield was approximately some £250,000 per annum.

Munitions Levy.—The munitions levy—the official title of which was the munitions exchequer payments—was imposed by the Munitions of War Acts, 1915 and 1916, and the rules made thereunder. It applied only to businesses (mainly concerned in the manufacture of munitions and war material) which were subject to Government control under the Munitions of War Acts, and the period of liability commenced in each case from the date when the business was made a controlled establishment under those Acts. Different businesses consequently commenced to be liable to the levy at different dates according to their respective dates of control; the earliest date at which any business was controlled being July 2 1915. The levy was repealed by the Finance Act, 1917, as from Dec. 31 1916. The scheme was to allow the owner of the controlled establishment to retain a certain amount of profit (defined as the “divisible profit”) the whole of the balance of profit in-excess of that amount being taken by the State. The “divisible profit” was measured by a standard amount of profit plus one-fifth of that standard and the standard was normally the average profit of the controlled establishment in the two years before the war.

Various allowances were prescribed in the rules (1915) relating to the levy, among the more important of which were allowances for increased output, increased capital, capital expended specially for purposes of munition work, and the rendering of special service.

Although controlled establishments were subject to this special levy they were also subject, like all other businesses, to the general tax, the excess profits duty. Provision was, however, made that only the higher of the two charges should be payable. The result was, therefore, that while the two imposts ran concurrently, controlled establishments were liable like other trading concerns to excess profits duty and were also liable to a possible additional charge representing the excess (if any) of the munitions levy charge over the excess profits duty charge.

When the rate of the excess profits duty was increased to 80% as from Jan. 1 1917, it became clear that in practically every case the excess profits duty would exceed the munitions levy charge. In these circumstances there was no object in continuing the munitions levy and that impost was repealed as from Dec. 31 1916.

The levy was administered at first by the Minister of Munitions; but when the levy was repealed by the Finance Act of 1917, the administration was transferred to the commissioners of Inland Revenue, the body in whom the administration of the excess profits duty was vested. Appeals against assessments to the levy were referred to a board of referees under the Munitions Acts.

In itself the munitions levy can hardly be regarded as a scheme of taxation; rather it was a means of restricting the amount of profits which the State was prepared to allow owners of certain particular classes of business to retain. In this respect an analogy to the munitions levy may be found in the coal-mines excess payments imposed by the Coal Mines Control Agreement (Confirmation) Act of 1918, and the coal levy imposed by the Coal-Mines Emergency Acts of 1920 and 1921, which were applied to the coal-mining industry, and which had the effect as from March 1 1917 to March 30 1921 of restricting the amount of profit the owners of that industry might retain, the balance being taken by the State. (G. B. C.)

.—In the United States the “excess-profits tax” (Act of March 3 1917), together with the “war excess-profits tax” (Act of Oct. 3 1917), and the “war-profits and excess-profits tax” (Act of Feb. 24 1919), was a natural product of the feeling that the abnormal expenses due to war should be borne so far as possible by taxes upon the increased profits of business which war usually brings. During the American Civil War the state of Georgia had adopted (1863) a tax on business profits in excess of 8% on the capital stock, varying from 5 to 25% according to the amount of such excess profits. But this experiment had been forgotten when the World War broke out, and the demand for special taxation of war profits first found expression, following the example of England, in the munition-manufacturers tax of Sept. 8 1916.

While the earlier plans for excess-profits taxation had attempted to confine it to profits directly attributable or traceable to the war, this limitation was soon abandoned and the net was spread for an increase or excess of profits during the war over normal profits earned prior to the war, allowance being made through a percentage of capital for (a) new business concerns, (b) additional investment by old concerns, and (c) concerns whose profits were abnormally low during the pre-war period. When the United States on March 3 1917 adopted its first excess-profits tax for the purpose of creating a “Special Preparedness Fund,” Canada's plan of disregarding pre-war profits was followed, and a tax of 8% imposed upon the net income of partnerships and corporations in excess of “the sum of (a) $5,000 and (b) 8% of the actual capital invested.”

The American decision to ignore pre-war profits was made deliberately by the framers of the law on the grounds that a deduction based upon invested capital is simpler, better designed to serve as the basis of a permanent tax, and more equitable in that it prevents taxpayers from securing immunity from taxation during the war on the ground that they had been unusually prosperous before the war. Eventually this decision precipitated an important controversy between the adherents of a “war-profits tax” (with the normal deduction based on pre-war earnings) and the advocates of an “excess-profits tax” (with the normal deduction computed as a percentage of invested capital); but the victory rested on the whole with the latter, although minor use of the pre-war profits was made in the tax finally collected for the year 1917, and for the one year 1918 a dual or alternative tax was imposed, the taxpayer paying in effect an 80% war-profits tax, or an excess-profits tax at progressive rates of 30 and 65%, whichever was the higher. For the year 1919 and thereafter, however, only the excess-profits tax was retained.

Rates and Exemptions.—Under the American tax the normal exemption or “excess-profits credit” consists of a specific exemption of $3,000 plus 8% of the invested capital. Profits or income in excess of this credit but not in excess of 20% of the invested capital are taxed at the rate of 20% and the remaining or higher profits are taxed at the rate of 40%. Under the American Act of Oct. 3 1917 the specific exemption to individuals and partnerships was $6,000 but to corporations only $3,000.

Taxpayers Subject.—The American law of 1917 applied to all trades and businesses including professions and occupations, but in case the trade or business had no invested capital or not more than a nominal capital, the tax was virtually an additional income tax equal to 8% of the income in excess of $3,000 for corporations and $6,000 for other taxpayers. Beginning with 1918, however, the tax was confined to corporations, excluding personal-service corporations (i.e. those “whose income is to be ascribed primarily to the activities of the personal owners or stockholders who are themselves regularly engaged in the active conduct of the affairs of the corporation and in which capital, whether invested or borrowed, is not a material income-producing factor”) which are taxed substantially as partnerships. This limitation was due to dissatisfaction with the attempt to tax professional men under the Act of 1917, and a recognition that the income-tax proper bears more lightly upon corporations than upon other taxpayers. Under the income tax the entire income or profit of an individual is subject to normal tax and surtaxes (the latter rising to 65%), whether the income is spent or reinvested; but the corporation does not pay income surtaxes and its stockholders pay surtaxes only on the profits which are distributed. After 1917, therefore, the excess-profits tax became a compensatory or balancing tax upon the income of corporations similar to the 5% corporation profits tax adopted in 1919 for the same purpose in the United Kingdom.

Yield.—Judged by the standard of productivity, the most important quality of a war tax, the excess-profits tax was conspicuously successful during the war. The yield of the tax is shown herewith:—

The figures for 1918 represent possibly the largest annual amount ever produced in one country by a single tax. During the crucial years 1917-9 the excess-profits tax produced more than 25% of the