56
3
2
1929,* regarding the treatment of gains on the sale of securities is not referred to in the Deputy Colonial Treasurer's niemorandum of 9th December, 1930,† and I am to ask what is the present position of this claim for exemption of revenue, with particular reference to the statement in paragraph 6 of the despatch of 10th September, 1929, that an amount of $504,104.70, has been withdrawn from the military contribu tion and is standing to the credit of the Suspense Account Military Contribution in the accounts of the Colony.
J
The Council will be glad if these observations may be considered by your Depart- ment in the light of the general principles contained in the memorandum, and I am to suggest that if they commend themselves to the Secretary of State for the Colonies the approval of the Treasury should be obtained for the proposed concessions. The Council will be prepared to nominate a representative to discuss any details or points of difficulty with your Department in conference if this should be desired; it is under- stood that the Treasury would prefer that the two Departments should agree upon a basis before Their Lordships' approval is sought for any changes.
In connexion with the questions referred to in this letter an examination has been made of the returns submitted by the Colonial Government annually in support of their calculation of the amount of the military contribution. It has been discovered that under the provisions of Section 15 of an Ordinance (No. 14 of 1927), the Colonial Government has since 1928 deducted the following amounts from the revenue assessable to contribution on account of charges for a loan for waterworks, etc. :-
1928 1929 1930
Total
$
380,000
628,000
628,000
$1,636,000
and that a similar deduction of $628,000 may apparently be expected for a number of years to come until the loan is paid off; the resultant loss to Army Funds to the end of 1930 amounts to approximately £29,000. The Council learn on inquiry that, contrary to the long-established principles relating to all modifications affecting the military contributions, the approval of your Department has inadvertently been given to the Ordinance in question without the requisite prior concurrence of the Lords Commissioners of the Treasury and of the Army Council.
The Council gather that sanction to the inclusion in the Ordinance of the power to make deductions for the service of the 1927 loan was given on the supposed analogy of the similar deductions by Ordinance No. 12 of 1916 which was approved by the Treasury and permits of deductions for the service of a War Loan raised in connexion with the contribution made by the Hong Kong Government towards the cost of the The Council are unable to see any analogy between the two loans, and they would not have been prepared to agree to the power of deductions which has been approved.
war.
As the deductions up to and including 1930 have been made by the Colony under the sanction of your Department given in 1927, the Council feel that it is unfortunately impossible for them to press now that they should be cancelled and the military con- tributions for the past years adjusted accordingly. They wish, however, to urge that steps should be taken to annul Section 15 of the Ordinance in order to prevent any future deduction, and they trust that the Secretary of State for the Colonies will be prepared to take such action at the earliest possible opportunity.
A copy of this letter is being sent to the Treasury.
Enclosure in No.
I am, &c.,
H. J. CREEDY.
MEMORANDUM BY THE WAR OFFICE ON THE CLAIMS OF THE GOVERNMENT OF HONG KONG FOR MODIFICATIONS OF THE REVENUE ASSESSABLE TO MILITARY CONTRIBUTION.
I. General Note on the Method of Calculating the Military Contributions.
1. The military contribution of the four Eastern Colonies is measured by a per- centage, varying with the particular Colony, of that portion of the Colony's gross revenue that is held to be assessable to contribution. This system was introduced by
* No. C. 62916/2C/29 [No. 1].
Enclosure in No. C. 82756/31 [No. 1].
C
the Haliburton Committee of 1895. The Committee excluded from the total gross revenue of the Colonies revenue derived from the sale of Colonial Crown Lands because the Colonies had been directed not to deal with sums derived from land
sales as ordinary revenue and the following percentages were fixed on the basis that this item was excluded :-
Straits Settlements
Hong Kong Ceylon
Mauritius
to
17 177
5
gross
They explained that the lowness of the percentage in the case of the last two Colonies was partly due to the fact that in these cases the revenue included the receipts from railways. They had at one time contemplated readjusting the revenue accounts of these Colonies, with a view of bringing (the percentage) more nearly to a level with the percentages of the Colonies which have no railways.' They would have taken steps to secure the same results whether a low percentage on a large gross revenue, or a higher percentage on a net revenue is taken." The matter, however, would be of great importance if the revenues were readjusted after the percentage were agreed upon, and therefore the Committee consider that it is better not to enter into any readjustments based on a distinction between gross and net revenue, as this might open a wide door to reclamations by the Colony after the per- centage was agreed upon."
A proposal to construct a Government railway in the Straits, and a probable extension of the railway system Ceylon, forced a reconsideration of this particular point, and the Committee was reassembled in 1896.
Their report of 1897 recommended that only such portion of the railway receipts should be included in the revenue as would, if the railway were a commercial specula- tion, and allowing for interest on capital expenditure, be available for the payment of dividend, subject to the following readjustment of the percentages :-
That for Ceylon to be altered to 93.
That for Mauritius to be altered to 54.
As the Straits Settlements and Hong Kong possessed no Government railways when the percentage was fixed, the Committee did not propose to disturb the per- centage in their case.
The contribution, however, previously (1895) proposed for these two Colonies were exclusive of certain expenditure on lands and buildings borne by the Colony. The Straits subsequently pressed for an inclusive rate of 20 per cent. to cover all military expenditure, and this arrangement was agreed to, the same terms being applied to Hong Kong.
The settlement thus finally arrived at is that in force to-day.
2. The general principles governing the method of calculating the contribution are well indicated in the following terms :- "The use of a fixed percentage of revenue
to determine the amount of the contribution is in itself merely a mode of calculation not based upon considerations of equity in its application to this or that class of revenue, but designed to produce roughly a fair contribution in view of the cost of the garrison and the general financial capacity of the Colony, and to enable the sum payable annually to be readily arrived at. It follows that no change of principle can properly be made in the items which compose the revenue on which the percentage is calculated without raising the question of an increase (or decrease as the case may be) of the percentage itself."
(War Office letter to Colonial Office of 13th March, 1908 (Hong Kong).) The point made in the last sentence quoted has been brought out on many occasions during the course of correspondence regarding the military contributions.
3. In the Appendix attached to this memorandum is a list of the modifications that have been agreed to or refused since the Settlement of 1895, complete to date as far as the War Office records show.
It will be seen that there are three main classes in which a modification of the basis
of assessable revenue in the original settlement has been approved.
Class I allows of the inclusion in the total assessable revenue of the net receipts and not the gross receipts of certain forms of revenue.
Class II allows of the exclusion from the gross revenue of certain items which are
not considered to be " revenue.
Class III allows of the exclusion from the gross revenue of certain items on account
of special ad hoc circumstances.
4. Dealing with the principles underlying the three classes of modification, the most important is that relating to net receipts.
(18280)
57