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Report No. 52

5. Theoretical principle about estate duty.-

One need not, for the present purpose, question the theoretical principle that estate duty represents a duty due from the estate to the State. In England, the Chancellor of the Exchequer, Sir William Harcourt, when introducing the estate duty in 1894, observed in his Budget Speech1-

"The title of the State to a share of the accumulated property of the deceased is anterior to that of the interest to be taken by those who are to share in it."

Theoretically, it may also be suggested that estate duty is 'back tax'. As Mr. Courtney said in the Parliamentary Debates in England in 1894 on the Finance Bill-

"The income tax in its present form involved the necessity of taking all income at thesame rate. The rich man who died was, therefore, in debt to the state. There was an accumulated deficiency in his contributions to direct taxation, and the simple defence of the estate duty was that it was a debt due from the estate of the deceased to the state in consequence of the deficiency of his contributions during his life The duty was a debt which must be paid out of the dead man's effects before they could be distributed."2

1. The Times, Parliamentary Reports, April 17, 1894, quoted by Sendford, Taxing Personal Wealth (Allen and Unwin) (1970), p. 45.

2. Parliamentary Debates, (Finance Bill in Committee) May 29, 1894. Sandford, Taxation of Personal Wealth (1970), p. 45.

6. But the point that requires to be emphasized is, that this theory leads to unnecessary hardship in a situation of the nature mentioned above,1 because the person accountable is, in effect, taxed "not according to his own wealth, but according to his father's wealth."2

As Professor Kaldor3 has observed-

"The legal notion that the estate duty is a tax on the deceased is really nonsensical-though it may have had rather more justification in the old days when people saved specially during their lifetime to cover death duty liabilities on their decease. If the incidence of estate duty is really on the legatee and not the testator, the sensible thing is to recognise this and to impose a tax on the receipient."

1. Para. 4, supra.

2. This was one of the points made in the general discussion in 1894 in Parliament on the relative merits of estate duty and inheritance tax. See Mr. Balfour's Speech, Hansard, May 10, 1894, cited in Sandford, Taxing Personal Wealth (1970), p. 47.

3. Nicholas Kaldor The Reform of Personal Taxation, Essays on Economic Policy, Vol. I, Duckworth (1964), pp. 242-213; cited in Sandford, Taxing • Personal Wealth (1970), pp. 152-153.

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