C.O.
This Document is the Property of His Britannic Majesty's Government
0.
CHINA TRADE.
CONFIDENTIAL.
[13482]
[B]
No. 1.
339
18674
[April 21.] REC
TREET 26 MAY 06
SECTION 1.
Sir E. Satow to Sir Edward Grey.--(Received April 21.)
(No. 84.) Sir,
WITH reference to previous correspondence respecting the taxation of opium at Peking, February 27, 1906. Canton, for a summary of which I beg to refer you to the inclosure in my despatch No. 60 of the 17th February, 1905, I have the honour to transmit herewith copy of a despatch from His Majesty's Consul-General at Canton containing translation of certain Regulations which have been recently issued by the Viceroy imposing additional taxation on the prepared drug. As you will perceive, these Regulations provide for the levy of a graduated scale of fees on the different shops selling opium, as well as the sum of 4 candareens per tael's worth of the article sold, i.e., 4 per cent. Mr. Scott states that he found a difficulty in protesting against these new Regulations, but that bearing in mind that previous attempts to levy a tax on prepared opium had been declared contrary to Treaty, he had considered it advisable to remind the Viceroy of the arrangement which had been made to refer such questions to the authorities at Peking. The Viceroy, in reply, argued that the tax is paid only after the packages have been opened, and justified his action by referring to the levy by the Yung An Tang Syndicate to which no objection had been raised. This statement of the Viceroy is correct (see Mr. Campbell's despatch No. 43 inclosed in my despatch No. 242 of the 7th July, 1904).
I referred the question to the Acting Commercial Attaché for his opinion. Mr. Hosie considers that this is an attempt on the part of the Viceroy to get round section 5 of the Additional Article to the Chefoo Agreement, which, while it does not deny to the Chinese Government the right to levy, as a terminal tax, a percentage on the value of foreign opium at the place of consumption, lays down a specific condition which must first be fulfilled. The scheme is not to levy a direct tax on raw or prepared opium, but to farm out opium-boiling shop licences and a levy of 4 per cent. on the sale price of prepared opium. The sum paid by the farmer will go into the provincial Exchequer, and the farmer collects and retains the taxes, simply becomes a Government agent for whose acts, in his capacity as agent, the Provincial Government is responsible. Opium, when boiled, remains opium, and the imposition of a levy on the sale price of prepared opium, enhancing, as it must, the cost to the consumer, is equivalent to a tax on the opium itself. It would be dangerous to allow this levy, for the scheme might easily be extended to any foreign import. To compel shops engaged in preparing foreign opium to take out licences constitutes, moreover, an indirect tax on the opium itself.
He considers that my view of the matter is that, assuming that the prepared opium contains foreign opium on which the full duty and li-kin of 110 taels a picul has been paid, the levy of 4 per cent. on prepared opium sold in a Treaty port is contrary to the intent of the Additional Article. I construe payment of duty and li-kin to mean that in a Treaty port foreign opium is free from further taxation, just as other foreign goods on which import duty has been paid are free from such taxation.
I do not think that the levy can be legitimately objected to outside Treaty ports, provided that no discrimination is made against foreign opium. If we make an objection, it should, in my view, be on the ground that we cannot be sure that foreign "opium shall not be subjected to any tax or contribution, direct or indirect, other than or in excess of such tax or contribution as is, or may hereafter be, levied on native opium." (See Article V of the Additional Article)
I am in doubt whether the licence fees can be strictly construed as contrary to Treaty. The fact that they are graduated and "assessed according to the size of the business" is against them, which might possibly be used in order to discriminate against shops dealing especially in foreign opium. On the other hand, we should not be able to object to such fees on other classes of shops in which foreign and Chinese goods were sold together.
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