C. 82756/31 [No. 16].
No.
COLONIAL OFFICE to WAR OFFICE.
[Answered by No. C. 92622/32 [No. 1].]
PROOF.
Downing Street, 20th November, 1931.
SIR,
I AM directed by Secretary Sir Philip Cunliffe-Lister to refer to the letter from this Department of the 27th of February* enclosing a copy of a despatch† from the Governor of Hong Kong regarding the exemption of certain items of revenue from assessment for military contribution. The questions at issue have been the subject of further semi-official discussion and I am now directed to request you to convey to the Army Council the following observations on the various points at issue.
A. Wireless Telegraphy.--Sir Philip Cunliffe-Lister understands that, as this is a new productive undertaking which was not in existence when the military contribu- tion was assessed, the Army Council agree that there is a case for treating the revenue from this source on the basis of net receipts, the expenditure being deducted from the gross receipts in order to determine the amount to be taken into consideration in assessing the military contribution.
As regards the suggested raising of the rate of allowance for capital expenditure met from revenue, Sir Philip Cunliffe-Lister has ascertained from the Crown Agents for the Colonies that the following are the approximate average rates at which Colonial loans have been raised in London since 1915;-
1915-1921 more than 6
per cent. 1922-1925 42 per cent. 1926
no considerable issue made. 1927-1930 5 per cent.
In view of these figures, Sir Philip Cunliffe Lister considers it not unreasonable to assume that the Hong Kong Government would have had to pay on the average at least 5 per cent. interest if a loan or loans had been raised to meet the capital expendi- ture on wireless telegraphy during these years. As it is understood that the old allowance of 4 per cent. was based on the assumption of interest at the rate of 3 per cent. and sinking fund contribution at the rate of 1 per cent. per annum, he considers that a case has been established for increasing the allowance to 6 per cent. If it is suggested that the sinking fund allowance might be slightly reduced in view of the increase in rates of interest, it should also be borne in mind that it cannot be assumed that the rate of interest will remain at its present high level during the whole period of amortization and that the average rate of interest during the period since 1915 is substantially in excess of 5 per cent, and that some compensation is due for the omission to make an adequate allowance for such capital expenditure in the past.
If the proposed new rate of 6 per cent. is agreed, Sir Philip Cunliffe-Lister would propose that it should apply generally in the case of all Colonies paying a military contribution in respect of capital expenditure on productive undertakings, met from revenue since 1915.
It is proposed that the allowance on capital expenditure at the new rate should be made for a period of 50 years from 1932. No adjustment of this allowance will be necessary in the event of the wireless telegraphy undertaking of the Hong Kong Govern- ment being transferred to any other body before the expiration of that period, unless one of the terms of transfer is the payment to the Hong Kong Government of a lump sum in return for the stations. No such payment is at present contemplated, but if one is made Sir Philip Cunliffe-Lister has no doubt that the Army Council will be prepared to consider an equitable arrangement to adjust the allowance to the new conditions.
B. Use of Government Motor Vans.-Sir Philip Cunliffe-Lister is satisfied that this is an undertaking outside the normal functions of the Hong Kong Government, i.e., besides being commercial in character, it is not an activity which that Government would normally undertake on its municipal side. He would be glad, therefore, to learn that the Army Council agree to the treatment of revenue from this source on the basis of net receipts.
C. Gap Rock Lighthouse.-Sir Philip Cunliffe-Lister recognizes that this item was included in the revenue when the present percentage was agreed. He considers, however, that it is clear that it ought not to have been so included, since, as previously explained, it is merely a reimbursement for a service undertaken by the Hong Kong Government on behalf of the Chinese authorities. The inclusion of this * revenue
* No. C. 82756/31 [No. 2]. Straits Defence Con.-Gp. 6. 131/2963.
† No. C. 82756/31 [No. 1]. 24. 8/34. (18285) M. & S. Ltd.
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