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easy for the individual taxpayer who knows his own circumstances to conceive that a form might be addressed to him which would meet all the requirements of his case for the purposes of the Revenue and which would be extremely simple. Looking at the matter from the point of view of the Board of Inland Revenue, who have to face a vast multitude of taxpayers whose circumstances vary infinitely and bring them within a great number of separate and complicated provisions, the problem is far different.

7. We have not thought it desirable to encumber our report with small verbal criticisms upon the language of the forms. Possible improvements in phraseology have suggested themselves here and there and these have been noted and will be taken into account by the Board of Inland Revenue.

8. We are glad to be able to add that in a number of instances criticisms made by witnesses have been met to their satisfaction by explanations on behalf of the Board of Inland Revenue.

INTRODUCTION.

9. We should like to commence by stating in outline the conditions which govern the preparation, issue and collection of these forms.

10. The Income Tax is a multifarious tax. It is levied under five schedules. At least two contain many sub-divisions. The most comprehensive of all, viz., Schedule D, contains six cases relating to various classes of income with different measures of taxation.

11. Again, the collection of Income Tax takes two distinct forms. As far as possible it is collected by deduction at the source of the income. Land is assessed in the hands of the occupier, and the landlord, rent-charger or mortgagee suffers deduction of his proportionate tax when his income is paid him. Income from investments paid in this country is, speaking generally, paid less deduction for Income Tax in a similar way. In such cases no returns are required from the taxpayer for the purposes of charging

him.

12. On the other hand where income is not of this nature, as in the case of trades or professions and of investments bearing interest or profits abroad, a return is required from the taxpayer in order to reveal to the Revenue Authorities the existence of this income. For this purpose Particular Notices" under Section 100 and Schedule V of the Income Tax Act, 1918, have to be issued to him. These are the "Return Forms" which we are asked to consider.

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13. The above in outline was the original scheme of the Income Tax. As originally introduced it might almost have been described as an aggregate of separate taxes, though all, of course, based upon the broad principle of taxing income. While it retained that form unadded to, no return of total income was

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necessary, save in the limited cases of persons who claimed total exemption, or, later in the history of the tax, abatement. With the introduction of the Super-tax, in 1910, a return of total income became obligatory on all persons falling within the scope of that tax. But now, since by the Finance Act of 1920 a system of allowances has been introduced applicable to every case, a return of total income, taxed and untaxed, is practically always necessary. We say practically because it is not obligatory except in the sense that a taxpayer cannot, speaking generally, get his allowances without it. The gathering together of the various items of income arising in different places in the case of every taxpayer without the multiplication and complication of forms is more difficult than perhaps might be realised at first sight, and it is fair to the Board of Inland Revenue to say that it presents a problem of such complication as to make it unfair to expect it to be solved without a few years' experience. We shall recur to this matter later.

14. It has been put to us that a return of total income is not necessary except to the extent of the reliefs claimed. One important head of relief, namely, life insurance, depends on the proportion borne by the premiums to the whole income of the claimant. The only taxpayers whose total income need not be fully ascertained are those whose income is above the total of their allowances and below the Super-tax limit, and who have no life assurance. This class is not large enough to justify the elaborate arrangements necessary to segregate them.

15. We have mentioned two general purposes for which forms must be addressed to the taxpayer, viz., for a return of assessable income (which is obligatory) and for a statement of total income (which is invited in his own interest). There is a third class of communication which must accompany both, and that is explanations. This triple necessity must always be kept in view. It lies at the root of the problem of shaping the return forms.

16. One broad suggestion which was made before the recent Royal Commission on the Income Tax and adopted by them, and of which we have also heard something, was that the forms might be simplified if all the explanatory matter were reduced into the form of a booklet to be supplied to taxpayers at low cost. Apart from other difficulties, we must point out that the Income Tax law is perpetually being modified and any booklet would necessarily become out of date, and the taxpayer would find himself tempted to work by out-of-date editions and confusion would be increased. instead of diminished.

17. Alterations in the law have a further bearing. It frequently happens that they are made at a period of the year when forms for returns have necessarily been already sent out and of course long after the year's supply of such forms has been printed. These alterations (at any rate when in favour of the subject) generally

relate back to the beginning of the year. The forms or explanations already in the hands of the taxpayer thus become in some particulars inaccurate, incomplete or even misleading. Corrections have then to be addressed to him, perhaps after he has filled up his form and dismissed the matter from his mind.

18. Yet another element of complication is introduced by the circumstance that assessable income is assessed at the place at which it arises. This is necessary for the protection of the Revenue. At any rate it is clearly required by law. In addition the general issue of forms and notices, and on the letter of the law, though not in practice, the actual computation of the liability is carried out by officials of numerous independent bodies of local commissioners. This leads to a multiplication in the number of the forms which many individuals receive.

19. The system as provided by law, under which the forms are issued by the divers persons engaged in the administration of the tax, is one of which an adequate conception can be formed only by a perusal of the statutes. It tends to increase the difficulties that would in any event be experienced by many taxpayers in understanding the forms. We ascribe a great deal of the confusion in the public mind as to the meaning of the various forms to the fact that they reach the taxpayer from sources which in his view are unrelated to each other.

20. The duty of issuing and getting in forms of return is in the main entrusted to the Assessor of Taxes in each parish, an official appointed by the District Commissioners of Taxes who are responsible for the local administration of the tax in each division of the country. The person so appointed is often not an Income Tax expert in any sense but simply a local resident, generally with other avocations. The notices of assessment are issued by other officials, the Clerks to the District Commissioners, and the demand notes by the Collectors of Taxes, although some reduction in the number of local officials engaged in administration is normally effected by appointing the same person to act both as Assessor and Collector.

21. The fact that a reasonable degree of uniformity is maintained in the administration is due to the co-ordinating influence of the Board of Inland Revenue exercised mainly through their trained officials, the Inspectors of Taxes, who are constantly in touch with the officials of the District Commissioners of Taxes and whose expert knowledge is available to them.

22. Statutory provision is made for the issue of forms only in certain limited circumstances by the Inspectors of Taxes, but seeing that in practice the Inspector's staff usually carries out the examination of returns and claims, and the computation of liabilities and repayments, a much greater variety and number of forms is in fact necessarily issued from their offices than is contemplated in the old statutes. But so far as the issue of return forms is concerned, the system is that they are issued

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generally by untrained local officers who act for small areas, and are employed only to a limited extent in the work of computing actual liabilities and reliefs.

23. While recognising that this is the system prescribed by existing law, we have been acutely aware throughout the whole course of our inquiry that it is a factor which checks simplification.

THE NUMBER OF FORMS.

24. As regards the number of forms in use, the point is, of course, not how many the Board of Inland Revenue have in their offices to meet different cases, but how many the individual taxpayer receives in relation to his particular case. If he is required to make a return of income by more than one form, it is either because the several forms relate to different classes of income (in which case, though there is multiplicity, there is in no sense any overlapping); or, secondly, because he has sources of income of similar kind arising in different places (in which case there is no overlapping as regards items, though there is as regards description); or, thirdly, because he has several addresses (in which case he may receive demands for returns which overlap each other in every sense). We will deal with these points in order.

25. With regard to the forms for different classes of income, we do not think anything substantial can be done in the way of consolidating two or more forms into one. Substantially, the various forms now in use must be retained. Real simplification would not be achieved by consolidating forms. The result would be that one form would have to serve divers purposes. The tendency of the Board has been the opposite one, viz., to devise separate forms for separate classes of cases as far as possible, and we think this is the direction in which true simplification lies. It is true that the number of forms that may issue is increased. We do not think that the complication to the individual is increased.

26. We will examine the principal suggestions for consolidation which have been made to us. It was urged by one witness that the separate return for Super-tax might be dispensed with, the return of total income for the purpose of obtaining the allowances being made to serve for Super-tax also. Under the existing law this is impossible. The return of total income for the purpose of the Income Tax allowances is made largely by way of forecast at the beginning of the year and may be falsified by the result.. Dividends, for example, may be higher or lower than anticipated. The return for Super-tax so far as tax-deducted income is concerned has to be on the actual income of the past year. Alike from the point of view of the Revenue and of the subject these results must be awaited. If anticipated, subject to correction later, the result would be greater and not less complexity. We point out, however, that the converse to this suggestion (viz., the

prætermission of a total income return for allowances in cases. where a Super-tax return is made) is to some extent in operation (see paragraph 35).

27. Again, prima facie there would appear to be some force in the suggestion that where a taxpayer claiming repayment in respect of a farming loss has made a return of his total income for the purpose of claiming the reliefs dependent on marital and family circumstances, etc., he should not be required to make a second return in connection with his loss claim. Here again, however, it is to be remembered that the return for the purpose of claiming reliefs is normally prepared early in the year of assessment on an estimated basis and in the absence of information which may materially affect the computation of the repayment on account of the farming loss.

28. The most important consolidation advocated before us was, however, the amalgamation of forms 11 and 12 (Schedules D and E, respectively). This was put forward in the memorandum submitted by the Society of Incorporated Accountants. Now Form 11 (Schedule D) is already the most copious and elaborate of the common return forms, and it embraces matters with which a large number of the 1,250,000 persons who receive form 12 (Schedule E) have no concern. Under recent legislation the taxation of about 250,000 persons has been transferred from Schedule D to Schedule E, and one of the advantages of that change is that all these persons will receive a simpler form. To a comparatively small number of persons in good positions it might be more convenient to be able to deal with salaried and other income on one form. But with regard to the mass of employees, their form should be limited as far as may be to their income from employment. If they have any income under Schedule D not taxed by deduction it is probably some small amount of War Loan interest. In order to obtain the tax upon such income without troubling the recipients with the complexities of Form 11 (that is to say, pursuing an idea exactly contrary to that embodied in the amalgamation now under consideration) the Board are working to a system under which it will be secured under the return of total income for the purpose of obtaining allowances.

29. While, however, we are in favour of specialisation of forms as against consolidation, we cannot help observing that the fact that the return forms and some of the claim forms are issued by inexpert local officials, whose standard of efficiency varies greatly, limits the number of special forms which can be provided to meet special circumstances. In many instances it necessitates the issue of comprehensive and therefore complex forms to taxpayers who might be classified into categories by a whole-time trained staff and spared the task of studying provisions of the law with which they are not immediately concerned.

30. Another suggestion that we have received is that simplification could be promoted by combining the notice of assessment

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