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Tax Payment

6.37. With inflation, any appreciable delay between tax liability and actual tax payment may produce a not insignificant reduction in the real burden of tax: tax is, in effect, paid in depreciated currency. Unless such delays can be exploited by all taxpayers, inequities will occur. There is of course always an advantage in postponing tax payments as long as possible, but the advantage may be greater with inflation. Expressed another way, any delay in paying tax confers a benefit on the taxpayer unless a realistic rate of interest is charged on the postponed amount; and since nominal interest rates tend to be higher in times of inflation, the advantage of delaying payment is correspondingly greater. For example, present arrangements for paying company tax involve a noticeable time-lag, and the Committee has recommendations to make in this regard in Chapter 22.

6.38. The other side of the coin, where taxpayers find themselves disadvantaged through initially paying too much tax, is perhaps best illustrated by the system of instalment deductions under personal income tax. Most wage and salary earners are obliged to make interest-free loans to the government by way of excessive instalment deductions which are not paid back until after the end of the financial year. In a time of rapid inflation, as at present, both the size of these loans and the rates of interest taxpayers are forgoing by not having the money themselves, tend to rise sharply. This too is discussed in Chapter 22.

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