§ In computing the profits of any trade or business under Parts II. and III. of this. Act, or under Part III. of the principal Act, such deductions as are necessary to give effect to any arrangement made by the Ministry of Munitions under the Munitions of War Act, 1915, or allowances made under Section forty, Sub-section (3), of the principal Act, which would have the effect of reducing the amount of the profits of the trade or business, shall be allowed by the Commissioners of Inland Revenue both for Excess Profits Duty and Income Tax.
§ The CHAIRMAN
These proposed new Clauses deal with the Munitions Act and with controlled establishments. I will hear the hon. Gentleman if he wishes to submit some new point on those subjects.
§ 8.0 P.M.
So far as the first proposed new Clause is concerned, the new point is to enable controlled firms to have the controlled establishments pre-war standard instead of the excess profits, standard. The excess profits standard did not come into vogue until some months after—I think it was in November—whereas the controlled establishments standard was established at the end of July. My first proposition is that the controlled establishments standard for those controlled establishments should stand instead of altering it again to the excess profits standard, which only came into vogue after they were made controlled establishments. I think that that would be in order. With regard to the second part, there is no alteration in the incidence of taxation, but if you have the Income Tax assessment on the ordinary Income Tax basis you will be doing away with all the benefit that the controlled establishments and other people get from the allowances for depreciation. The Income Tax authorities allow for depreciation only 5 per cent., 7½ per cent. 10½ per cent., or 15 per cent., according to the nature of the machinery and so forth. In regard to motor lorries, 15 per cent., and in some cases 25 per cent., may be allowed, but in ordinary cases not more than from 5 per cent, to 10 per cent. 951 is granted. Section 40 of the Finance (No. 2) Act of last year went a long way in this matter. It provides that
"Where it appears to the Commissioners of Inland Revenue, on the application of a taxpayer in any particular case that any provisions of the Fourth Schedule to this Act should be modified in his case owing to a change in the constitution of a partnership, or to the postponement or suspension as a consequence of the present War, of renewals or repairs, or to exceptional depreciation or obsolescence of assets employed in the trade or business due to the present War," etc.
A machine may be obsolescent or used up during the War. It may not necessarily be in connection with a controlled firm, because a great number of other firms are making war materials. The object of this allowance was to allow for obsolescence. Suppose £20,000 has been allowed for obsolescent machinery. The Income Tax Commissioners may allow only £5,000. If the person concerned has to pay 5s. in the £ on the higher sum, it may eat up the whole of his profits.
§ The CHAIRMAN
My objection was not that the Clause involved a charge, but that the question had already been settled as far as the Committee is concerned. I do not think I can rule the Clause out of order, but, the matter having been so fully debated yesterday, I hope the hon. Member's speech will not be longer than his point of order.
I am the last man to occupy the time of the Committee needlessly. I do not think the question of the relation of the Income Tax to war depreciation has been discussed.
§ The CHAIRMAN
I am speaking from recollection. But I am not disputing the hon. Member's right to move. We will take first the Clause dealing with the prewar standard of profits.
§ NEW CLAUSE (Provision as to Fixing Pre-War Standard of Profits) brought up, and read the first time.
§ Motion made, and Question proposed, "That the Clause be read a second time."
I will not take up the time of the Committee by making a speech. I will simply move formally.
§ Mr. MONTAGU
It is rather difficult for me to deal with these Clauses separately, because one is consequential on the other. What the hon. Member desires to achieve by the two Clauses is to alter, first, the standard, and then the allowance for depreciation. When he has done that he will have practically exempted controlled firms from the Excess Profits Tax, and then he will have succeeded in doing what the Committee yesterday decided not to do. If I am to argue as if this Clause were a separate proposition, I would say that our standard for the controlled firms has, as regards £21,000,000 of assessments, already been fixed. It would complicate matters enormously if the authorities had to go back on those assessments. As regards Income Tax, that part of the proposal has not been debated so far as I can understand it, because it was out of order in the form in which it was raised by the hon. Member for Windsor (Mr. J. Mason). The Excess Profits Tax and the munitions levy are both, let us hope, temporary expedients. They bear upon their face all the characteristics of temporary expedients. But the Income Tax has come to stay. Despite the repeated prophecies of Mr. Gladstone, we still have the Income Tax, and shall have it for a long time after the War. I do not think that in connection with the temporary and much more unscientific levy imposed by the Munitions Act, we ought to alter our Income Tax law.
This is a very grave matter, and I hope my right hon. Friend will give it his serious attention. Suppose the profits of an establishment in the matter of excess profits is £50,000. The allowances may be £50,000, but there may be a very great difference between that and the depreciation allowed by the Income Tax authorities under the Income Tax Act. The allowances made under the Excess Profits Tax Regulations, or under the munitions levy, may be more than the whole profit, and if they are disallowed a man may have no profit at all. You have only to work out a few figures to see that it is very possible for that to be so. I will not press the matter seriously now, but I will bring it up again on the Report stage. I hope that meanwhile my right hon. Friend will seriously consider the point.
§ Mr. MONTAGU
By all means bring it up on the Report stage, but do not bring 953 it up in this form. You do not seriously mean to apply the Ministry of Munitions rules to the Income Tax.
On that understanding, I beg leave to withdraw the Clause.
Proposed Clause and Motion, by leave, withdrawn.