§ I come now to my next source of additional revenue, which I hope to obtain from what I will call the Excess Profits Tax. It is proposed to introduce a special tax in respect of profits which have increased during the War period. The tax is to extend to all trades, manufactures, concerns in the nature of trade and businesses, including agencies, whose profits for any business year of account ending on any date between 1st September, 1914, and 1st July, 1915, exceeded the profits on the Income Tax assessment for 1914–15 by more than £100. I will explain the reason for the dates in a moment. It is proposed that 50 per cent, of the surplus above £100 shall be taken as the special tax. That, in brief, is the general principle of the proposal. Some explanation is needed to show how it will work in particular cases. Taking as the datum line the known average of profits assessed to Income Tax for the year 1914–15, a return will be required of the actual profits of the business year, and, as I have said, the taxpayer will be charged a special tax on any excess which these profits show over the datum line deducting therefrom the sum of £100. This is the general liability, which can be adjusted on appeal on any of the following grounds.
§ First, if the profits assessed to Income Tax for the year 1914–15 are less 357 than 6 per cent. on the capital employed by the proprietors in their business on 5th April, 1914, that percentage of their capital may be taken as the datum line. Next, where in the case of businesses mainly carried on before the War for supplying under Government contracts munitions of war and war materials, less than a fair return has been made on the proprietors' capital in the preceding three years, the datum line shall be determined by a tribunal specially appointed as one which would be fair in all the circumstances of the case. The Committee will see that this is a necessary proviso to deal with a very limited number of businesses—I do not suppose there are half a dozen—which have been carried on without profit for a great many years in peace, I will not say in the expectation or the hope, but on the possibility that one day in war they might recoup themselves for their loss. It is a fact which should be taken into account by an independent tribunal in determining what the datum line ought to be.
§ The third condition of which account must be taken is where additional capital has been invested during the War period. In such cases an allowance must be made for the capital invested. In the same way capital invested in the three years prior to the War, which has been unremunerative during that period, may be also a subject of allowance. In ordinary circumstances 6 per cent. would be the rate of interest applicable to the two last cases, but on appeal to a tribunal specially appointed, this rate of interest may be exceeded for any special reason, such as rapid depreciation, obsolescence, or the fact that the capital employed is useful for War purposes only. The estimate of the Revenue obtained under this excess profits tax is £30,000,000 in a full effective year. I gave, the Committee will remember, as the dates to be taken as the limits of the business account year, 1st September, 1914, and 1st July, 1915. That does not mean that the same principle of taxation will not apply to business accounts which are made up to a later date, but I am dealing now only with the immediate effect of this tax in this year.
358§ Mr. McKENNAYes, it is in addition to the Income Tax. I am very glad my hon. Friend put the question. The 50 per cent., of course, will be reckoned as Super-tax is reckoned. There is no allowance made for Income Tax. It works out, after deducting Income Tax, at just over 60 per cent, net of the profits. It is 50 per cent. without deduction, and just over 60 per cent. with deduction of Income Tax. I have for this purpose in this year limited it to the 1st July, in order that the effect of this tax might not interfere with the operations of the Munitions Act with regard to special firms which come under the provisions of that Act—Controlled Establishments. We shall have an opportunity, between now and the next Budget, of judging the effect of the Munitions Act, and we shall then be able to make proper arrangements so as to dovetail one Act into the other in the ensuing year. For the present year, for the purpose of this tax, it is limited to the business year of those firms whose business year ends on or before 30th June. As regards Revenue for the current year from this tax, not merely has a large deduction to be made, for the reasons I have just given, but a further deduction must be made in the Estimate owing to the unavoidable delay in collection, consequent upon the novelty of the tax and the working of the appeal system. I estimate that only £6,000,000 will be collected before 31st March next, but this will be a mere postponement for the benefit of next year's revenue. Taking, then, all the items of new Taxation together under the head of Inland Revenue, we have a total estimate of additional Revenue in the current year of £19,424,000, and in a full effective year of £77,085,000.
There is one other somewhat technical subject to which I must refer in connection with Inland Revenue, and that is the proposal to introduce into the Finance Bill a Clause dealing with the method of assessing banks to Income Tax. In future banks will be authorised to deduct the tax payable on the interest due to their customers on their 359 deposit and other accounts, and this interest will be included in the computation of bank profits for the purpose of their direct assessment.