Taxations Scare In Fiji

Undistributed Profits in Spotlight

A proposal by the Government of Fiji to introduce to the slovember Legislative Council a number of amendments to the ncome Tax Ordinance brought such a storm of protest from le Colony’s commercial interests that the Government hurriedly iltered its plan, and postponed the Bill.

[E object of the Bill, according to the Govetrnment, was “to close some of the loopholes in existing Ordinance, and improve lods of administration in several ects”. it if the Bill had been passed, roposed, new and drastic powers Id have been given to the tax ictor (Commissioner of Inland ;nue).

HEADY, the taxpayers had been fearful of change. There have been repeated rumours that the srnment wished to introduce ; parts of the Australian income system, which are regarded as oppressive.

Australia, a company’s profits taxed, before a dividend is de ;d. After the profits are divided distributed, the dividend is ;ed as part of the shareholder’s Tie, and taxed again, the Company wants to retain irt of its taxed profits, for use apital, and thus does not dis :te all its profits to shareholders taxing aumomy aroitranly s a large proportion of the ts thus withheld from distri m, under what is called “the un ibuted profits tax”. )st private companies in Aus a are embarrassed and crippled lis system. They cannot provide ;al from their own resources for nsion, although they may be ing good profits. In other words, cannot “plough back”.

Fiji, hitherto, a company pays bstantial tax on the whole of rofits —and those profits are not 1 again in the hands of share ers. Consequently, there has no need there for an undis ited profits tax.

E Fiji business community was ?iven no warning. The pro dsions of the new Bill were pub d only a few hours before the ing of the Legislative Council, h was to be asked to pass it. aen it was learned that (a) un ibuted profits were to be taxed, ertain circumstances, and (b) tin of the new powers would be ispective to July, 1956, there was itifiably—a good deal of panic. iere were hurried meetings o£ less people—mostly through nbers of Commerce—in Suva, oka and other centres; and strong representations were

made to the Governor. It was pointed out that this Bill could have far-reaching effects, and those con cerned had had no chance of study ing it.

The Governor (Sir Ronald Garvey) was reminded that in the Legis lative Council, in 1954, he had said: “I shall do all in my power to ensure that the policy of Govern ment—and this involves its taxation policy—will be designed to encourage investment, whether it take the form of investment of new capital or the ploughing back of profits already earned”.

It was pointed out that the tax ation amendments might operate, in direct contradiction of the above.

After some conferences—presum ably rather hurried —high official dom announced that the Bill would go before the Legislative Council only for a first reading. Its second reading would be postponed until the next session—March or April.

In the meantime, it would be ex amined and reported upon by a Select Committee.

SINCE then, it has become known that the situation was compli cated by factors not generally appreciated.

One was the departure of the top taxation man, Mr. W. J Drysdale, an exceedingly able man who, as Commissioner for Inland Revenue, has been trying to tighten up the

taxation system and remove some glaring anomalies. Mr. Drysdale (in Fiji, since 1948) has been seeking certain reforms for a long time; but the present Governor, anxious to en courage new investment in Fiji, and unwilling to create any uneasiness, has moved slowly and cautiously.

Then there came to Mr. Drysdale a chance to move to Hongkong on promotion; and he accepted it. He was due to leave Fiji on December 14. Evidently, it was decided to rush through his taxation reforms while he still was available to give advice.

That explains the remarkable haste in the introduction of the Bill.

It is stated —not officially, yet— that the proposed undistributed profits tax wouid not, like the hated Australian system, apply generally.

The Commissioner would nave dis cretion to apply it only to any com pany of not more than five persons; if less than 60 per cent, of profits were distributed he could, if he deemed the non-distribution un reasonable, order that it be treated as if it had been distributed; and such distribution (while not itself taxable) would have the * effect of lifting the shareholder’s taxable in come into a higher bracket.

It is claimed, on behalf of the Commissioner, that the privileges of Company registration have been flagrantly abused in Fiji—families, or very small groups, have registered as companies, in order to escape certain taxation for which, as in dividuals, they would have been liable. That was why the proposed undistributed profits provision was being limited to five persons or less.

The plan to make it retrospective to July, 1956, was similarly designed to catch certain tax-dodgers, while not interfering with the fair and proper operation of the Company system, and the safety of invest ments.