98
8. An experimental Income Tax was introduced in the Straits Settle- ments during the war and was later abandoned.
9. Economic and industrial development-particularly of small factories as yet in their infancy-would be seriously affected.
10.
Much of the real burden of an Income Tax would, in effect, be borne by the United Kingdom Treasury, in the way of allowances and remissions.
11. Payment of Income Tax might dry up the flow of subscriptions to public charities, e.g. Chinese hospitals.
12. Finally, it is undesirable to pass a law capable of only partial enforcement.
On the other side, the following arguments can be brought against these misgivings.
1. In every country loopholes for evasion exist, and will always exist. But there are also certain considerable classes of income which can- not easily escape, e.g. income from property in the Colony, profits of companies registered in the Colony, salaries and pensions of the employees. of Government and other large employers. The real problem is,-could evasion be kept within reasonable bounds? The same fears were expressed on the introduction of the tax in the United Kingdom and in other countries and it is well-known that incessant vigilance is necessary to prevent evasion in those countries. The tax is, however, regarded as successful at home- and there is no actual evidence that there is any greater tendency to evasion in Eastern countries than in the United Kingdom itself.
In this connection we have studied the original report, written in 1930, by Mr. H. J. Huxham, now Financial Secretary of Ceylon, on the possibility of Income Tax in Ceylon, and we have profited by a letter from him on the present working of the tax in that Colony, where evasion has not so far presented an insoluble problem. However, the position of Hong Kong may not be strictly analogous with that of Ceylon, and we consider that it is impossible to give a final answer to this objection without much fuller investigation.
2. This is in the main true, but is not by any means a final objection. The education of the community in the modern systems of accountancy would run concurrently with the early stages of the tax, exactly as has happened in the United Kingdom under the pressure of the need to satisfy the authorities of the accuracy of the taxpayer's own estimates of his income. By the time the tax was well established, this objection would probably have lost much of its force.
A
3. The migratory section of the population is, in general, precisely that section which would be exempt from the tax. Standards of living may, indeed, have to be reduced in some cases, but this in itself is not a relevant objection to this particular form of tax, however relevant it may be to the issue of whether to impose additional taxation at all. tax would become objectionable when its effect was to reduce the standard of living to an uneconomic and undesirable level. No result of this nature is contemplated in Hong Kong, if the usual scheme of allowances and exemptions is adopted.
4. The rates to be imposed in Hong Kong should not, we consider, be sufficiently high to drive away."refugee" capital and companies. It. might even pay to treat the income of non-residents from e.g. bank deposits particularly generously. In any event, diminished returns might well be accepted if attended by undiminished security.
5. This is quite a possible result although it is not one which has occurred on the imposition of the tax in other countries. For example, direct taxation was never adduced, even in the most turbulent times, as grounds for agitation for popular representation in India. The collection of any given amount of extra revenue may well lead to a demand for popular control of finance, whether it is raised by Income Tax or by other
means.