income of the year of assessment, in other cases on the income of the preceding year, and in still other cases on the average of the income of the three, five or seven years preceding the year of assessment. Super-tax is computed on the income on which income tax was paid for the preceding year, which, of course, after the application of averages, is usually quite a different amount from the actual income of the preceding year.

Deduction at the Source.

The distinguishing feature of the British income tax is the wide use of the system of deduction, or collection, of the tax at the source. Wherever possible, a person paying income to another is required to withhold the income tax therefrom and pay it over to the Government. The tax is assessed on the payor, and not on the recipient, of the income. Deduction at the source occurs principally in the case of income falling under Schedules A, C and E, direct assessment being principally relied on in connection with income under Schedules B and D. In general, tax is deducted at the source at the standard rate of income tax (4s.), irrespective of the taxable status of the person to whom the income is paid that is, whether or not his taxable income is such as to subject him to tax at that rate. If the tax so collected from him is greater than his total tax liability, he may make application to the Government for repayment. So often does this occur that for the year 1922-23 repayments totalling over £53,500,000 were made to approximately 1,500,000 claimants. The repayments amounted to over 17% of the gross tax collected.

Returns and Payment of the Tax.

As will be observed from a consideration of the preceding paragraph, the necessity for returns of income is not as great as it would be if less of the tax were collected at the source. Returns are necessary, however, for super-tax purposes, and of income not subject to deduction at the source. Liability to make a return may arise either from the affixing of a general notice on the church door of the

parish of the taxpayer, or from the service on him of a particular notice. The time within which a return must be made is stated on the notice.

It is necessary to file a return in order to secure the benefit of the reduced rate on earned income, as well as to take advantage of other permissible allowances and deductions. The result is that returns are required and obtained from almost all individual taxpayers. Where the return made is satisfactory, an assessment based on such return is made. If a return is not made, or if a return made is not satisfactory, the administrative officials may make the best assessment they can. The administrative officers have no power to compel production of books or accounts except upon an appeal by a taxpayer from an assessment. Where the tax is payable in one sum, it is payable on or before January 1st in the year of assessment, but if the assessment is not made before January 1st, the tax is payable the day after the assessment is signed. In case of an appeal from an assessment (appeals being provided for within a stated time from the day of notice of assessment) payment of the tax need not be made until the appeal is disposed of.

The tax in the case of income from certain sources is payable in a lump sum, in other cases in two instalments, and in the case of railway companies in England and Ireland in four quarterly instalments.

Administration.

The officials in charge of the administration of the income tax are as follows:

(a) The Commissioners of Inland Revenue.

(b) The General Commissioners.

(c) The Special Commissioners.
(d) The Additional Commissioners.

e) The Inspectors or Surveyors.
(f) The Assessors.

(g) The Collectors.

The duties of these officers are not always in accord with the system of administration as enacted by the statutes

The actual procedure frequently does not follow the statutory procedure. As said before the 1920 Royal Commission"... the administration of the tax can nowadays be adequately carried out only by means of compromises which involve in practice a considerable modification of the functions of the various authorities and officers as laid down in the law."

The Inspectors, who are permanent, paid officials, have assigned to them under the law many and varied duties. They examine all returns and approve of them, or recommend changes, before assessment is made by the Commissioners; they appear on appeals; they make assessments on weekly wage-earners; they initiate action with regard to additional assessments; they examine accounts, institute inquiries and clear up doubtful points. In fact, they usually settle disputes with taxpayers and obviate the necessity for appeals. They make a great deal of the work of the other officials merely formal, and are, indeed, the backbone of the income tax administration.

The Assessors are appointed annually for each parish by the General Commissioners. They issue forms of returns and perform certain minor clerical duties. In some cases the Inspector is also the Assessor.

The Collectors are appointed annually for each parish, in some cases by the General Commissioners, and in others by the Commissioners of Inland Revenue. Their duty is to collect the taxes that have been assessed.

The control, co-ordination and management of the income tax and its administration are in the hands of the Commissioners of Inland Revenue. They are responsible to the Chancellor of the Exchequer, and, through the Inspectors whom they appoint, are the central co-ordinating body. They secure a consistent and uniform administration of the income tax laws. They make statutory regulations and prescribe the forms in use.

The General Commissioners are a body of unpaid, local men appointed for the various administrative divisions in an obscure fashion by the Land Tax Commissioners. Their 1 Minutes of Evidence, Cmd. 288-1, Par. 359.

duties are to sign and allow assessments (except under Schedule D) and hear appeals (except in certain cases where taxpayers may request to be assessed by, or appeal to, the Special Commissioners).

The General Commissioners appoint the Additional Commissioners (unpaid), who make assessments under Schedule D.

The Special Commissioners (full-time, paid officials) are appointed by the Lords Commissioners of the Treasury. They make assessments and hear appeals under Schedule D when requested by any taxpayer. They assess the tax on railways and on foreign and colonial dividends paid in Great Britain, and assess, and hear appeals against, the super-tax.

Appeals.

As will have been seen, the law makes provision for appeals from assessments to certain of the bodies of Commissioners. In addition, it is provided that where any question of law arises on an appeal, either the appellant or the Inspector is entitled to have a case stated for the opinion of the High Court.

History.

The United States.

The

The Federal Income Tax in the United States is of much more modern origin than that of Great Britain, and has not had, even since first imposed, the continuity of the latter. It was first enacted in 1862, during the Civil War. tax was imposed upon “the annual gains, profits or incomes of any person residing in the United States, whether derived from any kind of property, rents, interest, dividends, salaries or from any profession, trade, employment or vocation carried on in the United States or elsewhere, or from any source whatever." Incomes below $600 were exempt. The rate on incomes below $10,000 was 3 %, and incomes above that figure were taxed at 5%. In the case of citizens residing abroad, the rate was also 5%; while on income from Government bonds the rate was 1%. The tax was

imposed under the Act of 1862 until 1864, when a new Act was passed. The Act of 1864 provided for a tax of 5 % on incomes in excess of $600 but not in excess of $5,000, 7% on the income between $5,000 and $10,000, and 10 % on any excess over $10,000. Deduction at the source was employed in the case of certain interest, salaries and dividends. It was also provided that there should be charged as income the net profit realized by sales of real estate purchased within the year. Losses from such sales were deductible from other gains and profits. Deductions were allowed for the rent paid for any homestead occupied, as well as for the rental value of any such occupied premises. In 1865 the rates were increased and administrative amendments were also enacted. In 1866 the scope of the tax was extended to include the income from all businesses, trades and professions carried on in the United States by nonresident aliens. In 1867 the principle of progression was abandoned and all income over $1,000 was taxed at the rate of 5%. In 1870 the tax was continued at a rate of 2% on all incomes over $2,000, and certain administrative changes were made. In 1872 the tax was abandoned.

The income tax was not reimposed until 1894, by which time the demand for fiscal reform had become insistent. The new law, with a few important exceptions, was a reenactment of the Civil War Income Tax, and the rate was 2% on incomes over $4,000. It applied to the incomes of all citizens or residents, and to the income of non-residents derived from property or business within the United States. The tax was also imposed on the net income of corporations doing business for profit in the United States. Taxation at the source was employed only in the case of salaries paid by the Government. The 1894 law, however, was never enforced. It was declared unconstitutional by the United States Supreme Court shortly after its enactment, on the ground that it imposed a direct tax on income from real property, and, under the Constitution of the United States, direct taxes may not be levied without apportionment among the several States according to their respective Pollock v. Farmers' Loan and Trust Co., 157 U.S. 429; 158 U.S. 601.