2
W.0.
25.4.32.
Submits observations on the points raised regard- ing exemption from assessment for military contritu- tion or other special treatment of certain items of
revenue.
good offer
The War Office have given way on the
maiority of the points in dispute, but those on which they maintain their ground are by far the most important. There are three matters still in disoute; (1) the rate of allowance on capital expenditure on productive undertakings met from revenue, (2) the water works, and (3) treatment of profits on sales of securities including treatment of income from investments made from the proceeds of land sales.
As regards the rate of allowance on capital expenditure, we proposed 6%, but I suggested in my minute of 2nd November that we might have to
compromise on 5% and this is what the War Office
no propose. On the whole 1 think we should close with this offer, as the present tendency is for
interest rates to fall. it is not a fair allowance in the particular circumstances of Hong Kong since the expenditure in question was undertaken at a time
when the rates were much higher, but it will apply to all Colonies and will probably last for some time in spite of the War Office proposal to revise it
if rates of interest diminish appreciably. I think we could manage to resist such a revision
for a considerable time.
As regards the water works, the War Office decline to accept the arguments that the New
Territories water works may be treated as a secarate
Ira
omductive