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HONG KONG LEGISLATIVE COUNCIL.
facilities, an administration which we can claim to reach a high standard of honesty and impartiality, and freedom from irksome restrictions. These advantages will remain and when some of the wilder talk about the imposition of an income tax has died down I do not believe that the enterprising business man will refrain from coming here to make a profit merely because that profit will not be quite so large as it might have been. It is, however, alleged that the existence or prospect of an income tax will drive capital away from the Colony and is in fact doing so. There are few things about which more nonsense is talked than about capital being removed from a country. The bulk of the capital invested in Hong Kong is invested in property, and in plant and equipment of all kinds, for example, the cables of the telephone and electricity companies, which cannot very well be removed from the Colony. All that can happen to such property is that the owner of it can sell it to somebody else. The income from it, however, will remain liable to Hong Kong income tax if it is imposed, and it is a matter of indifference to Government whether that tax is paid by the existing owner or by somebody else who buys his property from him.
I do not deny that there are other kinds of capital which can be removed. The principal type of such capital is actual cash balances which may be placed on deposit with banks or other financial institu- tions and which undoubtedly have come to Hong Kong as a temporary safe resting place. It is obvious that a non-resident who holds such deposits in Hong Kong might be tempted to transfer them elsewhere if he had to pay income tax on the interest received from them, and the transfer of such deposits might do the Colony harm. For that reason the Bill which is now being examined by the Income Tax Com- mittee provides that bank interest payable to non-residents shall be exempt from income tax.
It is alleged not merely that the existence of income tax will drive capital away in the future but that the prospect of it is already doing so. I do not know where that information is obtained. Move- ments of capital are notoriously difficult to detect and I can only go by such indications as are available. In the first place if a lot of people were selling Hong Kong dollars one would naturally expect the exchange rate to go down, within the limits permitted by our stabilization arrangements; in fact, however, anybody who has dealings in the exchange market will know that the effective market rate has been for many weeks at just about the highest point at which the banks can fix it under those arrangements. That does not indicate any flight from the Hong Kong dollar. Secondly, the returns which Government is now receiving of exchange transactions, details of which it is impossible to publish, do not indicate any such substantial flight. Thirdly, if a nervous shareholder were trying to avoid payment of income tax on Hong Kong investments he might be expected to sell his shares in Hong Kong companies. In the last four weeks the prices of the principal Hong Kong shares have moved hardly at all; but what movements have occurred show an average increase of about