§ How do we carry out the differentiation? I propose that where these conditions are satisfied—the income-tax remaining as a normal tax at the rate of Is.—the income tax should be imposed on 1204 the earned incomes within these limits at the lower rate of 9d. in the pound, being a relief of 3d. in the pound to this class of income-tax payer. That is to be in a addition to, and not in derogation of, all existing exemptions and abatements. The burden of proof will be on the individual claiming the lower rate, and we shall provide that he must make his claim with his return—this is a most important point—if he is a person to whom the formal return is sent and is required to fill it up; if he is not, he must claim exemption and abatement not later than 30th September in the year. In this way we shall avoid the enormous congestion of claims for refunds and abatements which accumulate at the end of every year. It is only fair to say to such a claimant, "If you want lo be rated at the lower rate you muse be zealous in the matter yourself." I propose to supplement those provisions with another set of provisions which are very much needed, and which carry out in the main the provisions of Lord Ritchie's Committee which sat two or three years ago. That Committee proved that under the present system there is much evasion and leakage. I propose to make it compulsory on every man who receives a form —that well-known buff-coloured form — as one of the annual incidents of the tax to make a declaration and to send back the return, even though all his income may be taxed at the source. If he has no unearned income he must say nil. At present also he is under no penalty, because he is under no statutory obligation to make it. I propose to make it compulsory in all cases that the return shall be made. In the next place, we shall increase the penalties and extend the period of recovery in cases of evasion. In the third place, we shall require extended returns from all employers, whether private persons or companies, requiring them to give not only the names but the salaries of their emplyés. This will, of course, impose a slight additional burden on the employers, but the precaution will tend enormously to prevent evasion. Further, I propose to repeal Section 133 of the Act of 1842, which allows an abatement of duty at the end of the year of assessment where it is found that the profits of that year fall short of the average of the previous three years. I may add also, as the representative of a Scottish constituency, that as 1205 the delay in the collection is almost entirely due to the persons directly assessed—the persons to whom we are going to give relief—we intend that the English machinery shall be levelled up, so that it may with equal efficiency correspond to the admirable machinery at work in Scotland. In order to make the matter clear I should like to point out how the system will work by a concrete instance. I take the amount of income-tax payable on certain incomes under the present and proposed scale. First of all I will take an income of £1,500 a year. At present, whatever may be the source of that income, at the rate of 1s. in the pound it pays £75. Under the now system, if the income is derived wholly from the Funds, it will continue to pay at the rate of 1s. in the pound, or £75. If, however, it is derived wholly from a profession or a trade, it will pay at the lower rate of 9d., or £56 5s. If, on the other hand, it is a composite income, say £500 from the Funds and £1,000 from a profession or trade, it will pay 1s. on the £500 and 9d. on the other portion, or £62 10s. instead of £75. Now as to the abatements. I will take an income of £600. At present such an income is allowed a deduction of £120, so that income-tax is paid on £480 irrespective of the sources of income. Under the new system Low will it work out? If the income of £600 is derived wholly from the Funds, it will pay £24; if wholly from a profession or trade, it will pay £18, at the rate of 9d. per pound, coupled with an abatement; and if the income is made up of £200 from the Funds and £400 from a profession or trade, it will pay £20 10s., the abatement of £120 being deducted from professional earnings.
§ MR. AUSTEN CHAMBERLAINIs the abatement in the case of the mixed income always to be made from the earned portion and not from the unearned?
§ *MR. ASQUITHYes, from the earned portion. The effect of this change will be a very sensible relief to that class of income-tax payers who are grievously oppressed by the present burdens, and it will enable us, with a clear conscience and with much greater ease and simplicity of working, to treat the income tax, as I intend it should be 1206 treated, as a permanent part of our fiscal machinery.