§ (1) The exemption from Income Tax chargeable under Schedules C and D, conferred by Section thirty-six of the Finance Act, 1894, on penny savings banks and other banks for savings, shall extend to all income of the savings bank which is 1658 applied in the payment or credit of interest to any depositor, and that Section shall have effect accordingly.
§ Provided that, where the interest paid or credited to any depositor in the year for which exemption is claimed exceeds the sum of five pounds, the bank and any branch thereof shall make a return to the surveyor of taxes for the district in which the bank or branch is situate of the name and place of residence of every depositor to whom any such sum has been paid or credited and of the amount thereof, and unless such returns are duly made the bank shall not be entitled to any relief under this Section. Any such return shall be made on or before the first day of May in the year following that in respect of which exemption is claimed.
§ (2) The provisions of this Act conferring relief from Income Tax in respect of expenses of management shall apply to savings banks and other banks for savings as they apply to companies whose businesses consist mainly of investments.
§ Clause brought up, and read the first time.
§ The FINANCIAL SECRETARY to the TREASURY (Mr. Montagu)I beg to move "That the Clause be read a second time."
4.0 P.M.
This Clause deals with the Income Tax payable by savings banks. Under the Income Tax law as it stands at present, a certified savings bank is entitled to exemption from Income Tax on its income from investments which are invested with the National Debt Commissioners. So far as the ordinary department of a certified savings bank is concerned, in which the limit of deposit is £200, they are compelled by law to invest all their profits with the National Debt Commissioners; therefore they get exemption from Income Tax. But so far as their special investments branch is concerned, in which the limit of deposit is £500, and so far as certain savings banks are concerned that are not certified savings banks, there is no general exemption from the Income Tax, although under the Finance Act, 1894, any savings bank, whether certified or not, is entitled to relief from Income Tax on such of their income from investments which goes to pay or credit interest to an investor of less than £5. On everything else those savings banks have to pay Income Tax. They do not, as a rule, recover the Income Tax which they have paid from their depositors. The reasons for that generally are, firstly, 1659 that it is very doubtful under the existing law whether they have the power, and, secondly, if they did, there is such a large number of investors that the procedure would be very complicated. The consequence is that the revenue obtains tax on a large amount of income which ultimately goes to exempt persons, and this tax falls upon both those who are liable and those who are exempted. This has been the state of the law up till now, with the exception of some banks which have succeeded in getting extra-statutory arrangements from the Inland Revenue under which a percentage of their total income, which was held to be roughly the amount which would go to exempted persons, is exempt from liability.
But this arrangement, which has been more or less satisfactory up to the present, becomes very serious now that the Income Tax is so high. Savings banks usually allow their depositors interest at 3 per cent. They get from their investments about 3½ per cent., and Income Tax at 2s. 6d. in the £ on 3½ per cent. interest represents a diminution of that interest by about seven-sixteenths per cent., so there is not much balance left for the savings bank management, and unless something is done to prevent the savings bank paying Income Tax, which they are not really liable to, it might result in very disastrous liquidation. Two alternative methods might be adopted. You might give them power to deduct Income Tax, and then allow the depositor to recover from the Inland Revenue, That is a very complicated machinery, which I am quite certain in this case the House would not approve. The next alternative is to exempt from Income Tax the whole of their profits which are used for the payment of interest to depositors whether under or over £5. This is a departure from the principle of Income Tax being paid at the source, but by the provisions of this Clause the savings banks are required to give to the Inland Revenue officials a list of those to whom interest of more than £5 is paid, so that it will be possible for those who are really liable to be directly assessed, and the information that we get from the savings banks will make sure that no one will escape. The cost of this relief would be about £25,000, but then, as this is a cost to the Exchequer by the loss of Income Tax to which really, strictly, under the law they 1660 were never entitled, I think it is a cost which we may well undertake. The second part of the Clause deals with the expenses of management, extending to savings banks which are not companies the exemption of management expenses which was allowed to insurance companies under Clause 8 of the existing Bill, which the House has already passed.
§ Question put, and agreed to.
§ Clause added to the Bill.