—Mr. Gladstone (1883.)

The study of the Annual Reports of our Inland Revenue Board is not calculated to exalt one's opinion of the Income Tax as far as Schedule D is concerned. The following extracts from these official documents are offered as a warning to any who are inclined to prefer systems of taxation based on the assessment of Income to those much stabler systems based on Rental.

12th Report (1869). "The claims to compensation which have arisen out of a recent extensive demolition of houses by the Metropolitan Board of Works, have given the usual evidence of the frauds which prevail in returns under Schedule D. The total number of these claims for compensation was 200, and on examination by our officers 80 surcharges had to be made, which were all sustained on appeal. In other words, the Revenue had been defrauded in 40 per cent, of the cases enquired into. The aggregate incomes returned by the parties was £73,642, and the amount ultimately found correct was £171,370, being 130 per cent, in excess of their returns. This naturally suggests the question, what must be the amount of loss to the Revenue in the assessments to Schedule D throughout the United Kingdom? and we think that the information furnished by this instance of compensation on a large scale does really give us the means of forming a rough but approximate estimate of the deficiency in returns. Of course if this were a solitary instance of the kind, it would be eminently illogical to build any argument upon it, but it is an invariable consequence of claims for compensation, where the actual profits of trades or professions are divulged, that we find the Income Tax Returns largely deficient. And this is not confined to any particular class, trade, or profession; we find the same when on abolition of some particular court the legal practitioners make good their claims; we find it on all occasions of large demolition of shops and warehouses for public purposes, in every variety of Trade; and we find it in great Public Companies, and in firms whose business is almost a national concern from its magnitude and world-wide reputation. We therefore think that we may venture to generalize upon the facts which the most recent occasion of compensation cases has furnished.

"We see no reason to distrust this estimate, at all events no reason to consider that it errs on the side of excess rather than otherwise. We have already stated that we have found every class of contributors to Schedule D liable i to the same shortcomings in Returns. We are far from saving that in all cases there has been wilful attempt to defraud the Revenue. In many cases no doubt the errors are unintentional, but what we are chiefly concerned with is the effect on the Public Income . . . . If Schedule D gave its due quota to the Revenue, we might be relieved of many an unpleasant impost."