§ In addition to these proposals for dealing with the avoidance of tax I have to mention some amendments of Income Tax law which are necessary to complete the system in places where it has been found to be deficient. The full explanation will be given when the Finance Bill is introduced, but inasmuch as they necessitate Resolutions, I must give a brief statement about them now. First, as to income arising while an estate is being administered after the death of its former owner, that is, when the executors and the administrators are winding up the estate, I propose that the income arising to the executors during the course of the administration of the estate shall be treated for Income Tax purposes as the income of the life tenant or the residuary legatee, as the case may be, in so far as the income is in fact paid over to the life tenant or to the residuary legatee.
§ In the case of the life tenant this only confirms a long-standing Income Tax 56 practice which, however, has been successfully challenged in the courts on the highly technical ground that the income remains the income of the executors even if it is being enjoyed by the life tenant. I think that if the life tenant enjoys the income he ought to pay tax upon it. In the case of the residuary legatee, where such payments have not been treated as containing any element of income, cases have arisen where the administration of an estate has been deliberately prolonged in order to avoid Surtax. The 'executors, it may be, can continue for some years on end to administer the estate, and no Surtax can be attached to the income earned during that time. I shall invite the Committee to deal with this matter by treating the income of an estate during administration, so far as it is paid to a residuary legatee, in one form or another, as his income.
§ The law needs amending in regard to the cashing of coupons. In a recent decision the Court of Appeal has held that the practice followed for the last 50 years is not justified by the language of the existing Acts. I propose to redefine the law so as to make it clear that the realisation of all coupons is within the ambit of the foreign dividends provisions in relation to deduction of tax, and that the proceeds constitute income of the recipient. This is an important matter not only from the revenue point of view but because banks and similar collecting agencies have habitually acted upon the assumption that I now propose to validate. There will also be a provision that where interest is funded, the value of the funding bond will be treated as income.
§ Other points in regard to which I propose to tighten the existing provisions of the law relate to the profit arising upon the sale of stock of trade, where a business has ceased—that is an Income Tax point—the avoidance of Stamp Duty by an abuse of the existing law in regard to company reorganisation, a matter to which the right hon. Member for Hillsborough (Mr. Alexander) was good enough to call my attention last year, and certain points relating to Death Duties, two of which involve an amendment of the legislation introduced in 1930 to check avoidance through the medium of companies. I have also to propose an amendment of Income Tax law relating 57 to the assessment of the sinking fund business of insurance companies. I am proposing as well certain amendments of last year's legislation dealing with National Defence Contribution, but I would ask the Committee to wait for further details in the provisions of the Finance Bill.
§ There are two minor matters in a different field. The first has to do with cinematograph films. I propose to table a Resolution relating to the reimportation of cinematograph films which have been exported after being printed in this country from foreign negatives. It has recently been suggested to me that additional employment could be secured for this country if foreign film negatives and sound tracks were admitted duty free for the purpose of producing positives for exhibition in foreign countries. Every country wants the talkie part of a film to be in its own language, but I understand that the combination of, say, an American film with a fresh sound track in French is highly technical work which cannot be done everywhere. Facilities exist for doing that over here and they would be utilised if duty had not to be paid. I am proposing, therefore, to make arrangements by which the work may be done in bond, but it is necessary to provide that the positives so produced shall not be re-imported for exhibition over here unless the duty is paid either on the foreign negative or sound track, or on the positive; this is what my proposal secures.
§ I propose to take power to extend the currency of Saving Certificates of the first issue, thus bringing them into line with the subsequent issues. I must also mention the Medicine Stamp Duties. A Committee of this House which considered this subject made a valuable report last year, but it has not yet been possible to arrive at conclusions on all the complex issues involved. It is my intention that a decision shall be reached before next year's Finance Bill.
§ After this lengthy but inevitable excursion into the winding and secluded backwaters of the law, I return to the main stream of my discourse. I come now to my estimate of the revenue on the existing basis to set against the total of £944,398,000 for which I have to provide. I will start with Customs and Excise. I feel justified in counting on some further expansion in the Customs and Excise revenue as a whole, although not at the same rate as in the last few 58 years. The agreement just made with Eire, welcome as it is on the broadest grounds, means that I now lose over £4,000,000 a year previously produced by the Special Duties and the associated Import Duties Act duties on imports from that country. Were it not for that fact, I would put the increase in revenue from Customs and Excise at just under £5,000,000, as compared with the increase of £14,500,000 last year. I expect to get my main increases from beer, £1,250,000—
§ Sir J. Simon—tobacco about £1,000,000 and oil about £2,000,000. In view of the fall last year in the consumption of spirits, I must anticipate a further decline in revenue under that head this year, and I put the reduction at about £750,000. I also estimate a small decline of £100,000 in the sugar revenue. This decline is expected to occur owing to a larger supply this year of home-grown sugar, on which I receive less duty per ton than on foreign sugar. As regards tariff items, I am expecting a slightly smaller yield from the imports under the Import Duties Act on account of the fall that has taken place in the general level of prices. Allowing for the loss of the Special Duties about £4,000,000 a year, my total estimate for Customs and Excise is £336,000,000.
Now I come to Inland Revenue. I calculate that the yield of Income Tax in 1938 should reach £319,000,000, that is £21,000,000 more than the actual receipts in 1937. The rise last year of the profit level and the general level of incomes will considerably increase assessments under Schedules D and E. I should like here to express my acknowledgments to those trading concerns which have been good enough to furnish forecasts of their trading profits for my assistance in framing the Income Tax estimate. The yield of Surtax I expect to reach £62,000,000, that is £5,000,000 more than the actual yield in 1937. The full effect of the growth of profits and incomes in 1937 and of some of my proposals for preventing tax avoidance will not appear in the Surtax yield until 1939.
Although Death Duties yielded £89,000,000 in 1937, I am afraid I cannot count upon a higher yield for 1938 than £88,000,000. The set-back in the price level of securities which took place last 59 year, and which still persists, must depress the yield of taxation levied on capital values, and even though a recovery takes place, the effect of the lower price levels of securities now obtaining must result in a lowering of the yield for part of the year. If there is no recovery during the year it may well prove the case that the figure of £88,000,000 will be found to be too optimistic. In the case of Stamp Duties, a more favourable estimate depends, of course, essentially upon a recovery in Stock Exchange activities. While there is every hope of it, I think it will be safer to relate the estimate to the actual yield of last year, and I accordingly put down for Stamp Duties a figure of £24,000,000. I expect the National Defence Contribution to yield £20,000,000 in the current year. This is £5,000,000 short of the estimate I gave twelve months ago of a full year's yield. The reason is that it will not be until the third year that the profits coming under charge will in all cases represent the profits of a full year.
The Committee will remember that the charge for National Defence Contribution runs from 1st April of last year and that the assessment takes place after the conclusion of the accounting year of the business in question. More than half of the trading profits coming under charge belong to businesses which make up their accounts to the end of December, and, owing to the time lag that necessarily occurs between the end of the trading year and the actual collection, the yield in the December cases will generally, or frequently, fall into the following year. Of course, the smaller yield for 1938 will be made good later on, as even though the tax is to last only for five years it will continue to produce revenue which will come into the year following its termination. Other Inland Revenue Duties —Land Tax, Mineral Rights Duty, Excess Profits Duty, Corporation Profits tax—I expect to yield in the aggregate £1,250,000. Thus my total estimate for all Inland Revenue Duties is £514,250,000. Motor Vehicle Duties I put at £36,000,000. Post Office net receipt is £8,670,000, which with £2,400,000 from the Post Office Fund makes the Post Office net Budget receipt £11,070,000. I put Crown Lands at £1,330,000, receipts from Sundry Loans £5,250,000, and Miscellaneous Revenue £10,500,000. The total 60 estimated revenue is thus £914,400,000. This falls short of the estimated expenditure by just under £30,000,000—actually £29,998,000—let us be grateful for the £2,000.