§ The principal head of New Taxation is Income Tax. I propose to add 40 per cent, to the existing Income Tax rates, combined with improved machinery for assessing employés, and special relief where income has fallen more than 10 per cent. The 40 per cent, rate of increase will be for the full year. Consequently in the remaining six months of the current year only 20 per cent. increase will become due. I will state the changes I propose in Income Tax law before giving the financial effect.
§ The first proposal is to reduce the exemption limit from £160 to £130. I ask the Committee also to reduce the abatement from £160 to £120. The whole proposal is that, while the exemption limit becomes £130, the abatement will be £120 where it was £160, and where it was £150 or £120 it will become £100. I will give 353 some concrete examples later on to show how it will act.
§ Next I propose that the assessment under Schedule B shall be taken as the rent paid, instead of one-third of the rent, without affecting the option of the assessed person to claim to be brought under Schedule D.
§ A far-reaching alteration of the Income Tax is suggested to enable the payment by instalments in certain cases. This alteration will not only operate as a relief to taxpayers, but, in the opinion of the Board of Inland Revenue, will facilitate the administration of the law, especially in the lower levels of assessment. Hitherto, speaking broadly, Income Tax has been payable for the whole year in January, but with the tax varying, as the tax will now, from 2s. 1d. to 3s. 6d. in the pound, the individual taxpayer in trade, etc., whose business assessment frequently covers the whole of his income, may obviously be hard put to it to find the necessary money to pay at one date the full tax which constitutes so large a slice of that income. The system of payment by instalments, which I am proposing, will enable individuals and firms who are liable to direct assessment in respect of trade, profession, or husbandry, to pay the tax in half-yearly instalments on the 1st January and on the 1st July following. I hope it will be appreciated that I emphasise the fact that it is on the 1st July following the 1st January that the tax will be payable; in other words, it is a postponement, and not a device for getting the tax paid at an earlier date.
§ A second change of importance is that for employés of all descriptions, both assessment and collection will be quarterly. These arrangements, however, will not disentitle the taxpayer to any relief which is found to be due to him on the basis of a full year's income. The change will take full effect next year. The arrangements for the current year are too far advanced to enable the transition to be made from the old system to the new in time. As a temporary expedient, however, I propose to allow persons to whom the instalment system is to apply 354 to pay the tax imposed by the first Budget of the year in January, and the additional duty under the present Budget in July.
§ Relief is also proposed from the additional Income Tax in certain cases. The whole of the additional duty will be repayable in the event of any individual proving that his actual income from all sources for the year is less by one-fifth than the income on which he has paid taxes. That is a short statement of the change. I will amplify it by saying that it is an endeavour to redress the hardship upon the individual who this year having a very small income, is nevertheless assessed on the average of the three preceding years when he had a very large income, and finds that he is called upon to pay 3s. 6d. in the pound Income Tax in respect of an income which it is true he once enjoyed, but which he now no longer possesses. It is proposed, where his actual income is less by one-fifth, that he shall be relieved of the whole of the 40 per cent, increase, and that where the deficiency does not amount to one-fifth but is more than 10 per cent., repayment of a proportionate part of the additional duty will be allowed.
§ I will deal now with the financial effect of these changes. The addition of 40 per cent, to the Income Tax, with 20 per cent, for the remainder of this year, after an allowance for the relief which I have just described, is estimated to bring in £11,274,000, and in a full effective year £37,400,000. The reduction of the exemption limit to £130 is estimated, in a full effective year, to bring in £939,000. The reduction of the abatement from £160 to £120, with the consequential changes, is estimated to produce £3,821,000 in a full year, and the increased liability under Schedule B is estimated to bring in £2,240,000. The total effect of these changes in 1915–16 will be to increase the Revenue by £11,274,000, and in a full effective year by £44,400,000.