rfield and Swire's Chinese agent, it appears that the tax claimed in this case by so-ku-chü" at Nganking is not, as the name seemed to indicate, "tso-ku-k'o,” or tax, but is simply lo-ti-shui," or destination tax.
The tso-ku-chu," says Taotai Tung, "is for the collection of lo-ti-shui,' levied on the business of Chinese merchants (or tradesmen). It is levied on the goods in warehouses, and not on the business premises."
In reply to the Taotai's communication on the subject, I pointed out that the English version of the Treaty of Tien-tsin, foreign goods under transit pass freed from all further inland taxation whatsoever, and that it matters not whether goods are in foreign or in Chinese hands if they are of foreign manufacture. With regard to the establishment of Chinese agencies for the sale of foreign goods at places situated in the interior, I stated that I knew of no Treaty Regulations that were infringed thereby, and that such a practice is commonly followed in the neighbourhood of Treaty ports.
In his reply, the Taotai admitted that the transit pass freed foreign goods en route, irrespective of the nationality of their temporary owner; but he doubted that foreign merchants were not authorized to set up establishments at places not opened to trade; and that the question as to whether Chinese shops should be taxed or not, in the interior, has nothing to do with foreign merchants.
The contention of the Nganking authorities is that goods of whatever nationality, in the hands of Chinese merchants, are liable to pay this tax at Nganking, and is the reason why they object to Butterfield and Swire's agent exhibiting a signboard bearing the name and title of the foreign firm. They maintain that to do so confers the status of a foreign "hong" upon the agency, and that as Nganking is not open to trade by Treaty, foreign merchants have no right to establish themselves there.
I have written to the Taotai pointing out that the sugar agency was set up in accordance with the Treaty, and that Butterfield and Swire had appointed a Chinese as their agent for the sale of their sugar in that market, thereby giving him to understand that, although a Chinese is in possession of the goods at Nganking, the goods themselves remain Butterfield and Swire's property.
This contention, I would submit, is one which should not be passed unnoticed. The "tso-li" is a tax levied on shops in many of the most important towns. It is therefore neither a transit tax nor a destination tax, and it has not been specifically included in Article VIII* of the Treaty of Shanghai among the taxes which are to be abolished. In view of the heavy surtax on foreign goods contemplated by the Mackay Treaty, the question both of this tax and of agencies of foreign firms in the interior becomes an important one.
I have also pointed out that the agency is for the sale of foreign goods only, and on a wholesale basis, so there is very little danger of a monopoly resulting therefrom, through the false representations of the Chinese agent.
In the present case, Messrs. Butterfield and Swire's agency is intended for wholesale business only; their agent is not authorized to sell less than a picul of sugar at one time. Supposing the tax to be levied on the goods stored in their depôts, there can be no false representations made as to their ownership, as reference could always be made to the transit pass. The goods will become more or less cumulative as these goods are distributed among other shops for purposes of retail. On the other hand, should the agencies be allowed to do a retail business, their exemption from the shop tax and li-kin would, perhaps, give them such an advantage that they might well acquire a monopoly of the market in respect of the class of goods sold by them.
The Nganking authorities complain not only of the establishment of depôts by foreign firms in the interior, but also of their exhibiting their "hong" names on a signboard, the reason being, I believe, that such a signboard is supposed to render the establishment practically independent of the local authorities.
I have, therefore, the honour to request your instructions on the following points:
1. Whether it can be maintained that foreign merchants have a Treaty right to establish depôts at places in the interior for the purpose of selling foreign goods through a Chinese agent.
2. Whether these agencies may do a retail business and exhibit the name and style of the foreign firm concerned on their signboard.
3. Whether they are liable to pay the shop tax, supposing that it is not levied in the form of a direct tax on the goods.
I have, &c. (Signed) V. L. SAVAGE.
Page 191
Inclosure 3 in No. 1.
Mr. Townley to Acting Consul Savage.
Peking, June 2, 1903.
I HAVE received your despatches Nos. 7 and 8 with regard to the establishment of Chinese agencies in the interior by foreign merchants.
I see nothing in the Treaties to prevent foreign merchants from establishing such agencies for the sale of their goods, whether retail or wholesale, but I think that these agencies must clearly be considered liable to the same taxation as their local competitors. The foreign owners of the goods they sell are, of course, entitled to all the privileges accorded to them by Treaty, as, for instance, the right to send their goods inland under transit pass, and they are also entitled to claim that their goods shall not be subjected to any differential taxation in excess of that levied on similar goods in native hands.
I have no reliable means of ascertaining in what manner the shop tax is levied. I propose to make inquiries from the officials on this point. I am meanwhile writing to the Taotai, requesting that Messrs. Butterfield and Swire's agency at Nganking be not interfered with pending the receipt of your instructions, and suggesting that a record be kept of the amount of the shop tax alleged to be payable by that agency, which will be paid ultimately by Messrs. Butterfield and Swire if you decide that they are liable. If the shop tax is levied on all shops of a certain class, without regard to the question of whether they were agencies of a foreign firm or not, I do not think any objection should be raised. What would be a legitimate subject of protest would be a tax on foreign agencies alone, or on them in excess of what was imposed on other shops of the same class.
As regards the exhibition of a signboard bearing the name and style of the foreign firm concerned, I think the main objection to it is that it suggests that in case any action, however legitimate, taken by the local authorities against the tenant of the shop, he would receive from His Majesty's Consular authorities the protection and support that would be his due if he were himself a British merchant. Cases might arise in which it would not be desirable or possible to give him such support, and then the absence of it might be misconstrued. I think, therefore, that the exhibition of such signs in the case of purely Chinese agencies should be discouraged; but I am not prepared to suggest their removal where they already exist, for that course might lead the local authorities to suppose that support previously given to the agencies had been suddenly been withdrawn, and they might regard them as being now placed at their mercy.
The course I suggest is that you should confidentially recommend the British firms concerned to discourage the use of such signs, but that to the Chinese authorities you should defend it as unobjectionable. One argument you might possibly use is that...
(No. 8.) Sir,
Inclosure 2 in No. 1.
Acting Consul Savage to Mr. Townley.
Wuhu, May 20, 1903.
IN continuation of my despatch No. 7 on the subject of the difficulties raised by the Nganking authorities to the establishment, in that city, of an agency for the sale of Butterfield and Swire's sugar, I have the honour to report that, from a letter I have since received from Taotai Tung, and from inquiries I have received as concerned...