(which must be a juridical person) carries out irrigation or drainage works, and may charge its expenses against the land benefited. This is not included in the additional tax (fukazei) above. At the time of the abolition of feudalism in 1871 the land tax constituted nine-tenths of the feudal revenues, and it was necessary to replace the various rates by a uniform system. For this a reassessment was imperative, and it could not be delayed. It was roughly made in the space of two years, and was improved on in the following years. It was completed in 1881. This survey was extremely liberal to the agriculturist, whose land is assessed at certainly not more than one-half of the market value. By the change the agriculturist acquired the fee simple of his land on payment of the annual land tax to the Government. By 1923 the capital value of land has increased very greatly, as compared with rates fixed some forty-five years ago, and the assessed values therefore differ widely from the capital values. Nevertheless, these have been for the present retained, except for residential land. The capital value of cultivated land for assessment purposes was arrived at by capitalising the net earnings or the rental value. The net earnings were calculated by deducting from the produce the cost of seed and manure, rates, and taxes. The amended official value of residential land is taken as ten times the annual rental. The real (or as it is sometimes called, the "legal") value of the land is, when required, obtained by comparing the land with other land the value of which has been established. The value of wet land per acre in the last quinquennium was approximately yen 143 (Rs.215), and of dry land, yen 37 (Rs.56). The average land tax would thus work out to yen 6-4 or Rs.9-11-0 for wet land, and yen 1.7 or Rs.2-8-0 for dry land, or an average of something like Rs.6 per acre. The corresponding rates in India were: for wet and dry together, Rs.2-14-0 in Lower Burma, Rs.2-9-0 in Madras, Rs.1-6-0 in Bombay, Rs.1-5-0 in Berar, and 10 annas in the Central Provinces. In Sind, where nine-tenths of the land tax is for irrigation, the rate was Rs.3-1-0. The superiority of the Japanese land tax over that of India lies in its elasticity. Thus in an emergency (as in the Russo-Japanese War) the tax could be raised without difficulty by increasing the percentage payable on the assessed value of the land. CONCLUSION 12. In paragraph 1 above we have discussed the general features of land taxation, and in subsequent paragraphs have referred to some of the systems in force in regard to land taxation. In all modern countries the taxation of land is an important part of a diversified tax system, for the simple reason that land cannot be removed, and the owners of the land have to submit to the taxation which is imposed on them. In the United States taxes on land are usually assessed on the value. Thus in the United States there is frequently a tax on real property of, say, $1.50 per $100 of the selling value, or 1 per cent on the owner's capital. In Great Britain the tax is, say, 5s. in the £ rental value on the occupier, i.e. 25 per cent of the rental. There is also a system of taxing profits. In the former system land is forced into use much more quickly than in Great Britain, where land comes more slowly into the market. In America, for example, the owner, being taxed on the capital value of the land, is forced in his own interests to make the rental of the land the same as the potential economic rent. The community, too, obtains through taxation a large share of the unearned increment. In most countries the taxation of land, as of buildings, is regarded as a suitable source of revenue for local taxation. CHAPTER XXI THE TAXATION OF INCOME (HISTORY) 1. THE spur of taxation has nowhere been more clearly seen in the twentieth century than in the system of taxation known as the income tax. The income tax is a corpus or code of taxation rather than a single tax, and every well-balanced financial system nowadays derives a large part of its receipts from direct taxation, mainly income tax.1 If this were not so, the burden of taxation would be unfairly distributed. Since the War income tax has become a great engine of revenue, especially for the balancing of budgets. The increases during the difficult times of the last few years have almost been phenomenal. In Great Britain the percentage of revenue from income tax to total tax revenue has increased from 29 per cent in the pre-War year to 47 per cent in 1921-22; in India 2 from 4 per cent to 19 per cent in the same period; and in the United States from 11 per cent of the Federal revenue in 1915-16 to 85 per cent. In Japan the pre-War percentage was 10, and it is now 36.3 Only in the rarest of instances has the income tax borne a less proportion of total tax revenue than in the pre-War period. There are other reasons why the income tax has been given a deservedly high place in the treatment of the science of Public Finance. It has become universal in all the chief industrial countries. In the United States, for example, as we have already seen, the foundation of the Federal income tax was laid in February 1913, when the Sixteenth Amendment was ratified. In Great Britain a Departmental Committee, and subsequently a 1 For the proportion of direct and indirect taxes in certain countries see Table XXIV., App. 3 See Table XXIV., App. 2 Central revenue only. Joint Select Committee of the House of Lords and the House of Commons, surveyed the whole field of income tax, and as a result 13 Acts and parts of 39 other Acts were repealed by a Consolidating Act, the Income Tax Act of 1918 (8 & 9 Geo. V. c. 40). This Act was passed on 8th August 1918 and came into effect from 6th April 1919. The Report of the Royal Commission1 is undoubtedly the locus classicus on the subject of taxation of income. The terms of reference were "to inquire into the income tax (including super tax) of the United Kingdom in all its aspects, including the scope, rates, and incidence of the tax; allowances and reliefs; administration, assessment, appeal, and collection and prevention of evasion; and to report what alterations of law and practice are necessary or desirable and what effect they would have on rates of taxes, if it were necessary to maintain the total yield". The object of the Commission was limited to this: to improve the equitableness of the tax without, in any way, making it less effective. The evidence and appendices to the Report on the history of the income tax system in its various aspects, especially in regard to graduation, abatements, and differentiation, taxation at source and evasion prepared by the Board of Inland Revenue, as well as the statistics in the reports, are a mine of information applicable in a large degree to all countries where an income tax obtains. In India the system of taxation of incomes has hitherto been undeveloped, but with the passing of the Indian Income Tax Act (No. XI. of 1922) and the formation of a Board of Central Revenue, the income tax has been given a greater importance than in any period of its history from the date when it was first introduced in 1860. In Japan the income tax introduced in 1887 and modified in 1899 was completely revised in 1920. We have seen elsewhere how in France a general income tax was put upon the Statute Book just before the outbreak of War, how the old direct taxes on real estate were converted into taxes on income from real estate, and how the income tax from industrial, commercial, and agricultural produce, as well as salaries, etc., took the place of the old taxes on doors and windows, trades and professions. 1 Cmd. 615. The Report and Minutes of Evidence are published in 9 volumes. The numbers of the minutes of evidence are as follows: 288, 1 (1919), 1st instalment; 288, 2 (1919), 2nd instalment; 288, 3 (1919), 3rd instalment; 288, 4 (1919), 4th instalment; 288, 5 (1919), 5th instalment; 288, 6 (1920), 6th instalment; 288, 7 (1920), 7th instalment; 288, 8 (1920), index. 2 Vide § 8, Chapter XVI. p. 156. It would be tedious to review the detailed changes made during the present century in other countries of Continental Europe. The words of Gladstone in the British House of Commons uttered over seventy years ago are truer than ever. "I for one "" he said in his first Budget speech,1 am bold enough to hope and to expect that in reforming your own fiscal and commercial system, you have laid the foundation of similar reforms-slow, perhaps, but certain in their progress-through every country of the civilised world". 1 66 Before dealing with principles it will be convenient to examine in some detail the history of the income tax in certain countries. We have to be careful not to nibble at a subject like this, and we have to look to the general effect on the whole system, especially in times of stress and strain, when Budgets have to be balanced. The taxation of corporations may or may not be discussed under income taxation. The case for a discussion in this connection is the growing tendency in most countries to tax corporations on their income, and not on any other basis. On the other hand, corporations are taxed because of their privilege to be corporations and to do business as corporations and, in some cases, to do it in a particular way. In the eyes of the law a corporation is a person who exists although the individual shareholders may die. It has, in other words, a juristic personality. It also has the right of limited liability, a term too well understood to require explanation. Sometimes corporations are taxed on the basis of their income, sometimes on the value of their property or the volume of their business. All things considered, it is advisable to postpone a detailed consideration of a corporation tax to a subsequent chapter.2 GREAT BRITAIN 2. Ninety per cent of the British income tax is derived from the incomes of individuals; the remainder is from the income belonging to and retained by corporations (e.g. undistributed profits of limited liability companies) or from the income of persons resident abroad. The tax is one tax on the total income of a person imposed at a standard rate for a year of assessment, i.e. from the 6th April in one calendar year to the 5th April of the following year. 1 18th April 1853. 2 Vide Chapter XXIV. |