§ Section five of the Finance Act, 1914, shall have effect as though there were inserted after the words "United Kingdom," on the second line of the Section, the words "other than India and at British Dominion, colony, or dependency beyond the seas."
§ Clause brought up, and read the first time.
§ Mr. BRYCE
I beg to move "That the Clause be read a second time."
This is a proposal to return to the old precedents of the Income Tax Acts. Before the year 1914 no Income Tax was charged upon money which was not received in this country, for good and 921 sufficient reasons no doubt, although they did not appear to be good and sufficient reasons to ail of us. The Chancellor of the Exchequer of that day urged that it was not for the advantage of the country that people should be allowed to accumulate money abroad for the purpose of defrauding the revenue of this country of Income Tax upon moneys left abroad. That may have been a good and sufficient reason with regard to money left in a foreign country, but I do think that the House of Commons might, in the changed circumstances of those days reconsider whether it is a good policy to prevent the accumulation of moneys abroad, at any rate in the Dominions of His Majesty the King. I strongly urge that in the case of this particular levy upon money which is left in the Dominions and not brought home there should be exemptions. It appears to be quite a different case from the general case. There is a great deal to be said, no doubt, on the general ground on which the double Income Tax is supported, but it is extremely important, for instance, that money should be left in India. It is very difficult to get capital into that country. It has to be seduced there. It does not go there naturally because of the hostile attitude of the Government of India towards foreign investments. They always seem to think it a great disadvantage that capital should be introduced there, because they feared it might lead to the exploitation of the people of India.
I do not want to say a word, especially in the presence of the hon. Member for W. Nottingham (Sir J. D. Rees) against the administration of the Indian Civil Service. I think that administration is one of the finest in the world. But I rather think that since the day when the principles of Warren Hastings' Government came into disrepute they have had an exaggerated idea of the necessity of protecting the native of India. The native does not want protecting at all in these days. He is able to look after himself remarkably well, and so far from the action of the Government of India being directed towards preventing the introduction of capital into India, it should be their business to encourage it in every way, because, while it might be an advantage to the capitalist, it would certainly be an advantage to the people of India. The tendency of the change in legislation, which took place in the year 1914, was to draw away money which 922 would naturally have been left in India, and to bring it back to this country because the payers of Income Tax could not afford to pay the double, tax, and the tendency will be more and more for money to be withdrawn from India when people who have been living there return to this country to pass the remainder of their days. India differs from other self-governing colonies in the respect that men cannot possibly live there to the end of their days. They have to come home; they want their children educated in this country; their health suffers if they continue to live out there except in a few favoured localities. The result is that when a man has done his work out there he invariably comes home, and, in consequence of the legislation of 1914 he brings his capital away with him. The same reasons apply to a large extent to the Colonies, but I do not want to repeat the argument which was raised the other day.
We do ask, especially under the changed views of relationship between the great Dominions and the Mother-country, that you should in every way help the development of these regions. There is no method by which that can be better secured than by allowing money to remain out there, because the income from it would assist in the development and extension of business. The proposal I now make to return to the old principles of the Income Tax Act would help that. It is rather characteristic of the reply given by the Treasury, and by Lord St. Aldwyn, the Chancellor of the Exchequer twenty years ago, to representations made by the Colonial Institute, which was objecting to the payment for the first time of double Income Tax. Lord St. Aldwyn stated that the Lords of the Treasury were unable to reconcile the proposal before them with the leading principles of Income Tax legislation in this country. Income Tax here, as its name implied, was a tax upon income received in the United Kingdom. In this respect, according to the statements in the memorial, it differed from the Income Tax established in the Colony, which extended only to incomes earned in the country where the tax was in force. I should like to take this opportunity of correcting what the Chancellor of the Exchequer said the other day in regard to the Commonwealth tax. He declared it was a tax upon income derived from anywhere. But I have taken the trouble to look the matter up, and I shall be able, I 923 think, to show him that his impression on the point is incorrect, because the words of the Act are:
"subject to the Provisions of this Act Income Tax shall be levied and paid…on all taxable incomes derived directly or indirectly by the taxpayer from sources within Australia."
That is a clear limitation of the Income Tax to incomes derived in the Commonwealth itself, and therefore the right hon. Gentleman was wrong when he suggested it was also levied on income derived outside the Commonwealth. But I do not want to argue that point. I submit that for the development of India and of our Dominions and Colonies it is an essential thing we should return to the old principles of the Income Tax Acts, and tax only incomes earned within the United Kingdom.
§ Mr. COWAN
The case put by the hon. Member for Inverness (Mr. Bryce) is a strong one, but he confined it to the individual hardship of the individual investor. I think that even a stronger case of hardship might be made out in the case of companies. Many companies trading in this country find it convenient, when carrying on a branch of business in the Dominions^ to register the business as a limited company, usually under their own name. In that case great hardship arises if the trading company or manufacturing concern in this country, having a branch, say, in Canada, should form a registered company under the laws of that Dominion, the company here holding the whole of the capital or, at any rate, a controlling interest. Since 1914 they have been obliged to pay double Income Tax not merely on the profits and dividends declared by the sub-company and brought over to this country, but they have also been obliged to pay double Income Tax on the undivided profits which are not brought home. The result is that there is a temptation not to leave the undivided profits in the Colony.
The advantage of leaving the money in the Colony would be great because it would help in the development of business and at the same time in the development of the Colony itself. But that money is to a large extent now withdrawn, and the parent company has every inducement to bring all the profits home and divide them among the shareholders, whereas if this small Colonial preference were permitted in the case of undivided profits the money 924 would be allowed in many cases to remain in the Colony, and both the Colony and the company would benefit thereby. It is regrettable that, since 1914, a company desiring to develop its business in any of our British Dominions should have been discouraged doing so by being placed in exactly the same position as if they were trading in a foreign country. I do suggest that this small preference might be extended to British traders. It is not an unreasonable thing to ask that traders in our Colonies and Dominions, as against those in foreign countries, should be enabled in this way to develop their businesses by leaving their profits to accumulate there and using them for the extension of business rather than be compelled to bring them home simply in order to escape this double taxation within the Empire. If there is any hardship in the individual being required to pay a double Income Tax, that hardship is still greater in the case of a company.
§ Sir J. D. REES
The hon. Member for Inverness (Mr. Bryce) need not have feared hurting the feelings of Indian Civil servants, for they regard him, I believe, as one of their patron saints and best friends. I do not agree with all that he said about: the Government of India. He did not speak harshly about it, but as he quoted Lord St. Aldwyn, perhaps I may be permitted to follow his example and site another statement by that Noble Lord, who declared that the finances of India were far better administered than those of England. The change in legislation made in 1914 was received with something like consternation in India, My hon. Friend has referred to the effect of it upon companies. That effect no doubt is very serious. It has already led to at least one very important company ceasing to operate in England in order to escape the double Income Tax, and the process will probably be repeated, to the detriment of this country and incidentally of the right hon. Gentleman's revenue. I know the right hon. Gentleman the other day declared that that was not the reason for the company removing its offices. Of course there may have been other contributory causes. Motives are always mixed, but I have no doubt that the avoidance of the payment of the double Incame Tax was the object which actuated that company in clearing out of this country. I ask him not to lose sight of that, and that as a far-sighted guardian of finance he will take it into account.
925 As regards companies, there can be no doubt as to the result. As regards the individual, let me take the case of an Indian or other Civil servant who comes home. He has generally, while in India, invested his extremely small savings, let us say, in a tea estate. Previously to 1914 the profits on that estate remained in India, and, perhaps, were the only provision for his eldest son. The Committee will, no doubt, remember that public servants in India are, as a rule, as poor as they are deserving. I cannot put it higher than that. Their case is an extremely hard one. Everybody who has anything invested in India has felt this grievance seriously. I can assure my right hon. Friend that it is a great grievance, and one that I am putting quite seriously, although I am not speaking in a bitter manner. It is a very great harship to individuals, as well as to companies, and it should, if possible, be corrected. My hon. Friend (Mr. Bryce) said something about native India not now standing much in need of protection, but being over-protected by the Government of India. I thoroughly agree with him, although I am not sure that the Government of India now tries to keep capital out of India. The difficulty is to get capital into India. When you get men like public servants who leave all their small savings, which in the aggregate amount to a large sum, and which help to carry on industries which British administration has introduced, it is a very great pity that they should have to pay double Income Tax, which checks that salutary process and leads to their taking their money away with them. For these reasons I beg to support the Amendment.
§ Sir F. BANBURY
I supported the Government on the question whether or not there should be a double Income Tax, and I also ventured to speak in their support, but I hope now that as this is quite a different question they will be able to meet my hon. Friend (Mr. Bryce). The effect of the proposal can be stated shortly. It is, that if a man living in England has money invested in Australia— which is now, and always has been, part of the Empure—and does not bring the interest on that money over to England, he shall not be charged Income Tax on the money which remains in Australia and does not come to England. It is just that a man who has money in one part of this great Empire, who does not reside in that part, but who has his money taxed there, 926 should not be taxed in another part where he does reside but where he does not receive one penny in any shape or form. That is the question which I sincerely hope the right hon. Gentleman will meet. If he does that, he might fairly make the Income Tax in England payable on money received from the Colonies just the same for the Colonial as for anybody else. At present I believe there is a difference of, I think it is, 3s. 6d.
§ Sir F. BANBURY
Personally, I dislike all these differentiations. The right hon. Gentleman might easily go back next year to the old principle that anybody living in this country should pay Income Tax upon, the money that he receives and spends in this country. If the right hon. Gentleman makes this concession I believe it will stop the agitation with regard to the double Income Tax altogether. I shall certainly support the Amendment if it goes to a Division.
§ Mr. DAVID MASON
I hope the Chancellor of the Exchequer will adhere to the existing rate. One of the main reasons for the alteration in the law was because the great insurance companies in this country were in the habit of accumulating large balances in the United States of America. They became very rich, but paid no Income Tax, by allowing their profits to accumulate over there. In 1914 the Chancellor of the Exchequer was perfectly justified in making the alteration.
§ Mr. MASON
I quite agree with the right hon. Baronet, but the principle is the same. It should not be possible for institutions carrying on business in India or the Colonies. The Chancellor of the Exchequer requires all the revenue he can got from taxation, and I hope he will not go back on the principle he has introduced, but will adhere to the original law.
§ Mr. STEWART
I spoke on this subject the other night and do not wish to repeat what I then said, but, as the hon. Gentleman opposite (Mr. D. Mason) made the speech he has made, I would say it is time we ought to differentiate between investments in foreign countries and those in our own Empire. It occurred to me only a half an hour ago, when I was walking round the House with a number of 927 wounded New Zealand and Australian soldiers, while looking at these men, some of them all tied up, with wounds in all parts of their bodies, that if one had asked any Member of this House, "Why is it you pass taxation which tends to keep your people from investing money in my country?" it would be a very difficult thing to answer. I again appeal to the Chancellor of the Exchequer with my hon. Friend the Member for Inverness (Mr. Bryce), and I was going to say the hon. Member for India but he is actually the hon. Member for East Nottingham (Sir J. D. Rees), to see if he cannot give some more favourable consideration to this matter, so that our people shall be encouraged to invest their savings and let them fructify for the benefit of our people -wherever they may be.
§ Mr. MONTAGU
I must say one or two words in reply. I fail to differentiate this proposal in principle from the proposals we were discussing the other night. We have admitted that the relations between Dominion Income Tax and British Income Tax need to be adjusted, and we are anxious and willing, when opportunity offers, to confer with the representatives of the Dominions on the subject. This is part of it. I am quite sure that the suggestion of the right hon. Baronet (Sir F. Banbury) would not meet with the approval of the right hon. Gentleman on the Front Bench (Sir G. Reid), namely, that if we make this concession now, the whole question of the readjustment between the Imperial and the Dominion Income Tax might be left for ever in abeyance.
§ Sir GEORGE REID
It would have one advantage, which is that this might be done now, whereas the other opportunity might never arise.
§ Mr. MONTAGU
Ah! but we want this as a factor in the settlement. I would urge the Committee to leave the matter where it is now. The legislation we have already passed in this Bill does give a preference to investment in the Dominions, and not only a preference to investment in the Dominions over foreign countries, but even to a great extent a preference to investment in the Dominions over investment in Great Britain. Therefore we have already done something substantial. I venture to suggest that the complicated question of the relations between the Dominions and the 928 British Income Tax should be left over until the next Colonial Conference at the end of the War.
§ Question, "That the Clause be read a second time," put, and negatived.
§ Notice of the following had been given by Mr. NEEDHAM—