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8. The Committee carefully examined the Hon. Mr. Shenton's proposal to charge ad valorem transfer duty on the sale contract note and to charge no duty on the transfer It will of instrument. Various criticisms of this proposal are given in the appendix. course be seen that the criticisms are not a single body of reasoned argument but are in- dependent criticisms. The chief reasons which led the Committee to reject this proposal are the two following. In the first place, the Committee is not satisfied that the pro- posal would be effective. The public will pay a light and convenient duty, but will often try to evade a heavy or inconvenient duty. The heavier duty on sale contract notes might lead to evasion of the provision that a share contract note must be made out on every sale. The duty would also be a somewhat less convenient one than the present duty on share contract notes, where the stamped forms can be obtained in bulk beforehand. If the proposal were not effective it is even conceivable that the revenue from transfer duty might fall. In the second place, if the proposed legislation were generally observed, there would undoubtedly be a large increase in the taxation levied on share transactions. That might tend materially to reduce the business in shares, and might drive away capital from the Colony. Brokers would be seriously affected, and it is even conceivable that the revenue might ultimately suffer.
9. The Committee would like to draw the attention of the Government to the sug- gestion contained in paragraph 16 of the Appendix, that the Collector should regularly keep a record of the amount received by way of transfer duty, in case the proposal to in- crease the scale of share contract note duty and to abolish share transfer duty is revived.
10. It was objected in some quarters to some of the proposals that if they were adopted the Government would be departing from a bargain entered into with the stock exchanges at the time of the passing of the Stamp Ordinance, 1921. The Committee can- not agree that the discussions which took place then can properly be represented as con- stituting a bargain which would tie the hands of the Government for all time.
Dated the tenth day of August, 1929.
(Signed)
J. H. KEMP, Chairman.
M. J. BREEN.
R. H. KOTEW ALL.
A. C. HYNES.
J. P. BRAGA.
B. D. F. BEITH.
J. SCOTT HARSTON.
LI TSZ FONG.
P. TESTER.
E. M. RAYMOND.
FIRST APPENDIX.
VARIOUS PROPOSALS
for preventing evasion of the stamp duty on share transactions
and of the estate duty on shares.
I.
Passing on of dividends prohibited.
1. Make it illegal to pass on dividends to subsequent unregistered purchasers. This proposal was originally made by the Hong Kong Stock Exchange in 1921, and it is con- curred in by the Hong Kong Sharebrokers Association. It is objected to by the Share and Real Estate Brokers Society of Hong Kong. A draft section to carry out this proposal is annexed (Annexe A). The Committee recommends the enactment of this section.
2. It is hoped that the mere prohibition may be enough with some persons, and that with the others the possibility of prosecution and a heavy penalty will be a sufficient in- ducement to them to abandon a practice which in any case gives them unnecessary trou- ble, and which exposes them to pecuniary risk in the case of partly paid shares.
3. The draft section makes it clear that a trustee will still be entitled to pay to a cestui que trust dividends on shares which he holds for that cestui que trust, but it is pro- vided in sub-section (4) that the registered owner is not to be deemed to hold as trustee for any subsequent purchaser.
4. It is also provided that a person who bona fide lends money on shares may claim the dividend if the express written terms of the loan agreement entitle him to do so.
5. The maximum penalty is made $1000 or the total amount of the dividend in question, whichever limit be the greater.
6. One suggestion on the above proposal was that all claims for dividends against the former (registered) owner should be absolutely barred after a year, and that the registered (but no longer beneficial) owner should be empowered and required to repav the dividends (if collected) to the company, or to collect them and pay them into the Treasury. It is assumed that it was intended that the subsequent beneficial owner should be able to claim the dividends from the company, or Treasury, upon getting himself registered as the owner of the shares. The Committee does not recommend the adoption of this suggestion.
7. Another suggestion was that if the proposed draft section were adopted a special form of receipt for dividends passed on should be required by law. This receipt should be a declaration as to the particular ground on which the recipient is entitled to receive the dividend though not the registered owner. It was suggested that the recipient would hesitate to sign such a declaration if untrue. If he did sign an untrue declaration, pro- secution for evasion would be facilitated. The Committee does not recommend the adop- tion of this suggestion.
II.
Registration in name of deceased to be prima facie evidence of ownership at death for purpose of estate duty, and estate to be liable for contraventions of dividend section (Proposal I), the onus to be on the estate to prove compliance.
8. This was proposed by the Hon. Mr. Breen. A draft section to carry out the proposal is annexed (Annexe B). The Committee recommends its enactment.
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