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would not be exceeded by raising the amount of income on which an abatement would be allowed to £1000 or even more.

2. Graduation by a super-tax is practicable. If it be desired to levy a much higher rate of tax upon large incomes (say of £5000 and upwards) than has hitherto been charged, a super-tax based on personal declaration would be a practicable method.

3. Abandonment of the system of “collection at the source” and adoption of the principle of direct personal assessment of the whole of each person’s income would be inexpedient.

4. Differentiation between earned and unearned incomes is practicable, especially if it be limited to earned incomes not exceeding £3000 a year, and effect be given to it by charging a lower rate of tax upon them.

5. A compulsory personal declaration from each individual of total net income in respect of which tax is payable is expedient, and would do much to prevent the evasion and avoidance of income tax which at present prevail.

Acting upon the report of this committee the Finance Bill of 1909 was framed to give effect to the principles of graduation and differentiation. The rate upon the earned portion of incomes of persons whose total income did not exceed £3000 was left unchanged, viz. 9d. in the pound up to £2000, and 1s. in the pound between £2000 and £3000. But the rate of 1s. in the pound on all unearned incomes and on the earned portion of incomes over £2000 from all sources was raised to 1s. 2d. In addition to the ordinary tax of 1s. 2d. in the pound, a super-tax of 6d. in the pound was levied on all incomes exceeding £5000 a year, the super-tax being paid upon the amount by which the incomes exceed £3000 a year. A special abatement of £10 a child for every child under the age of sixteen was allowed upon all incomes under £500 a year. No abatements or exemptions were allowed to persons not resident in the United Kingdom, except in the case of crown servants and persons residing abroad on account of their health. Certain abatements for improvements were also allowed to the owners of land or houses.

The estimated increased yield of the income tax for 1909–1910 on these lines was £2,500,000, which excluded the abatements allowed for improvements. The super-tax was estimated to yield a sum of £500,000, which would be increased ultimately to £2,500,000, when all returns and assessments were made.

The following accounts show the operation of the same system of taxation in other countries:—[1]

Austria.—The income tax dates from 1849, but the existing tax, which is arranged on a progressive system, came into force on the 1st of January 1898. The tax is levied on net income, deductions from the gross income being allowed for upkeep of business, houses and lands, for premiums paid for insurance against injuries, for interest on business and private debts, and for payment of taxes other than income tax. Incomes under £50 a year are exempt, the rate of taxation at the first stage (£52) being 0.6 of the income; at the twelfth stage (£100) the rate is 1%, at the twenty-seventh stage (£300) it rises to 2%, at the forty-third stage (£1000) it is 3%, and at the fifty-sixth (£2500) it is 31/2%; an income of £4000 pays 4%; from £4000 up to £8333 per annum progression rises at £166 a step, and for every step £8, 6s. 8d. taxation is assessed. Incomes between £8333 and £8750 pay £387, 10s.; incomes over £8750 are taxed £20, 6s. 8d. at each successive stage of £417, 10s. Certain persons are exempt from the tax, viz.:—(a) the emperor; (b) members of the imperial family, as far as regards such sums as they receive as allowances; (c) the diplomatic corps, the consular corps who are not Austrian citizens, and the official staffs and foreign servants of the embassies, legations and consulates; (d) such people as are exempted by treaty or by the law of nations; (e) people in possession of pensions from the Order of Maria Theresa, and those who receive pensions on account of wounds or the pension attached to the medal for bravery, are exempted as far as the pensions are concerned; (f) officers, chaplains and men of the army and navy have no tax levied on their pay; (g) all other military persons, and such people as are included in the scheme of mobilization are exempted from any tax on their pay. Special allowances are made for incomes derived from labour, either physical or mental, as well as for a family with several children. There are also special exemptions in certain cases where the annual income does not exceed £4167, 10s., viz.—(a) special charges for educating children who may be blind, deaf, dumb or crippled; (b) expense in maintaining poor relations; (c) perpetual illness; (d) debts; (e) special misfortunes caused by fire or floods; (f) being called out for military service. The tax is assessed usually on a direct return from the individual taxpayer, except in the cases of fixed salaries and wages, on which the tax is collected from the employer, who either deducts it from the salary of the employee or pays it out of his own pocket. The tax, which is assessed on the income of the previous year, is paid direct to the collector’s office in two instalments—one on the 1st of June and the other on the 1st of December.

Belgium.—No income tax proper exists in Belgium, but there is a state tax of 2% on the dividends of joint stock companies.

Denmark.—Income tax is levied under a law of the 15th of May 1903. Incomes under 2000 kroner pay a tax of 1.3%; under 3000 kroner, 1.4%; under 4000 kroner, 1.5%; under 6000 kroner, 1.6%; under 8000 kroner, 1.7%; under 10,000 kroner, 1.8%; under 15,000 kroner, 1.9%; under 20,000 kroner, 2.0% and for every additional 10,000 kroner up to 100,000 kroner 1%, incomes of 100,000 kroner and upwards paying 2.5%. Exempt from the duty are—the king, members of the royal family and the civil list; the legations, staffs and consular officers of foreign powers (not being Danish subjects); foreigners temporarily resident in the country; mortgage societies, credit institutions, savings and loan banks. The increase in capital resulting from an increase in value of properties is not deemed income—on the other hand no deduction in income is made if such properties decrease in value—nor are daily payments and travelling expenses received for the transaction of business on public service, if the person has thereby been obliged to reside outside his own parish. Certain deductions can be made in calculating income—such as working expenses, office expenses, pensions and other burthens, amounts paid for direct taxation, dues to commune and church, tithe, tenant and farming charges, heirs’ allowances and similar burthens; interest on mortgages and other debts, and what has been spent for necessary maintenance or insurance of the property of the taxpayer. There are also certain exemptions with respect to companies not having an establishment in the country.

France.—There is no income tax in France corresponding exactly to that levied in the United Kingdom. There are certain direct taxes, such as the taxes on buildings, personnelle mobilière, and doors and windows (impôts de répartition)—the tax levied on income from land and from all trades and professions (impôts de quotité) which bear a certain resemblance to portions of the British income tax (see France: Finance). From time to time a graduated income tax has been under discussion in the French Chambers, the proposal being to substitute such a tax for the existing (personnelle mobilière) and doors and windows taxes, but no agreement on the matter has been reached.

German Empire.—In Prussia the income tax is levied under a law of the 24th of June 1891. All persons with incomes of over £150 per annum are required to send in an annual declaration of their full income, divided according to four main sources—(a) capital; (b) landed property; (c) trade and industry; (d) employment bringing gain, this latter including the salary or wages of workmen, servants and industrial assistants, military persons and officials; also the receipts of authors, artists, scientists, teachers and tutors. Liability for income tax, however, begins with an income of £45, and rises by a regular system of progression, the rate being about 3% of the income. Thus an income of more than £45, but under £52, 10s. pays a tax of 6s. and so on up to £475, an income over that sum but under £525 paying a tax of 15s. Incomes over £525 rise by steps of £50 up to £1525, for every step £1, 10s. being paid. Incomes between £1526 and £1600 rise by steps of £75, £3 being paid for every step. Between £1601 and £3900, the steps are £100, and the tax £4 a step; from £3901 to £5000 the steps are the same (£100), but the tax is £5 a step. There is also a supplementary tax on property of about 1/20th% of the assessed value. This supplementary tax is not levied on those whose taxable property does not exceed a total value of £300, nor on those whose annual income does not exceed £45, if the total value of their taxable property does not exceed £1000, nor on women who have members of their own family under age to maintain, nor on orphans under age, nor on persons incapable of earning incomes if their taxable property does not exceed £1000 nor their income £60. There are a number of exemptions from the income tax, some of the more important being—(a) the military incomes of non-commissioned officers and privates, also of all persons on the active list of the army or navy as long as they belong to a unit in war formation; (b) extraordinary receipts from inheritances, presents, insurances, from the sale of real estate not undertaken for purposes of industry or speculation, and similar profits (all of which are reckoned as increases of capital); (c) expenses incurred for the purpose of acquiring, assuring and maintaining income; (d) interest on debts; (e) the regular annual depreciation arising from wear of buildings, machines, tools, &c., in so far as they are not included under working expenses; (f) the contributions which taxpayers are compelled by law or agreement to pay to invalid, accident, old age insurance, widow, orphan and pension funds; (g) insurance premiums. Moreover, persons liable to taxation with an income of not more than £150 may deduct from that income £2, 10s. for every member of their family under fourteen years of age, and abatement is also allowed to persons with incomes up to £475 whose solvency has been unfavourably affected by adverse economic circumstances. The income tax is both levied at the source (as in the case of companies) and assessed on a direct return by the taxpayer of his income from all sources. Salaries are not taxed before payment. Fixed receipts are assessed according to their amount for the taxation

year in which the assessment is made, and variable incomes on an

  1. In Appendix No. 4 to the Report from the Select Committee on Income Tax (1906), will be found a valuable list (prepared in the Library of the London School of Economics) of references to the graduation of the income tax and the distribution of incomes both in the United Kingdom and in other countries.