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The Honourable the Financial Secretary said: "Although the War Revenue Ordinance has secured con- siderably more revenue than was an- ticipated it has failed to secure enough to meet the revised war ex- penditure either in the current year or in 1941/42."
Opposite Position
Pausing here I should like to point: out that the position he now takes up is fundamentally opposite to that taken up by Government hitherto. As I pointed out in this Council on March 14, 1940,
His Excellency Sir Geoffry Northcote, in his speech in this Council on November 16, 1939, made it quite clear that Government did not determine to raise budget revenue in any pre-determin- ed sum: in other words, the Govern- ment's attitude was that as regards war expenditure, that expenditure was to be limited to the sum obtain- able by the War Revenue Ordinance, and not that the Colony had to find a specified amount.
a war
as
The Financial Secretary points out that according to the revised estim- ate, salary tax will bring in $1,000,- 000 as was anticipated: property tax $2,300,000 as against $2,000,000 was anticipated: whilst corporation and business tax should bring in $6,400,000 as against $3,000,000 anti- cipated. But he adds, as regards the latter item: "This figure includes not less than $5,500,000 in respect of corporation profits and only $900,000 in respect of business profits, which is disappointingly small.
"
Sir, this is the whole case for sug- gesting that the principles on which taxation is based should be recon- sidered. I can see no ground for sur- prise that the business profits tax should yield something just under one million, as against the unex- pectedly larger yield of corporation profits.
No Accurate Data
Mr Caine never attempted any- thing more than a guess of the combined yield of the corporation and business profits tax, for the simple reason that there were no accurate data available. Nor can I see how the yield of the taxes as above indicated can afford any evi- dence that the incidence is not spread fairly over the community. It may well be that, in order to produce more revenue, some alterations will have to be made in the Ordinance. As I do not wish to anticipate in any way the findings of the Committee which His Excellency has recon- stituted I abstain from further com- ment.
I regret that I now come to a point of serious criticism against the administration of the War Revenue Ordinance. In the Report of Mr Caine, to which I have referred, he made it quite plain that "Partner- ships will be assessed as a whole and no enquiry whatever will be neces- sary into the division of profits be- tween partners." The Honourable the Financial Secretary himself, in
41
introducing this Bill in March 1940, said:
"The third and fourth taxes are respectively a corporation profits tax
and a business profits tax on profits made in the Colony which is levied on the business and not on individual persons so that no enquiry as to the ownership of the business and the division of the pro- fits is involved.
the There is, in circumstances, no deduction in re- spect of personal and family allow-
ances.
"
Fundamental Violated
In spite of the history of this mat- ter, and of the official declarations to which I have referred, I am sorry to have to state openly in this Council that examiners have sought to get Chinese firms to disclose the names of the partners constituting the firms. I should have thought it impossible that any Government official would proceed counter to one of the funda- mental bases of the taxation, and I look to the Honourable the Finan- cial Secretary, as the Commissioner under the War Revenue Ordinance, to see to it that his subordinate offi- cers do carry out completely the spirit of the framers of the legisla- tion, in accordance with the solemn declarations of Government.
The Honourable the Financial Secretary has intimated that Gov- ernment proposes to increase the Death Duties. I appreciate that Honourable Members will have an opportunity of discussing this ques- tion when the necessary amending Bill is before this Council. But in the meantime I wish to make a few general observations.
The Report of the Taxation Com- mittee published as Sessional Paper No. 2 (1939) contained the following observation on the question of Death Duties:-
"Any further revenue under this head should be obtained by an in- crease in the rates of Estate Duty rather than by the introduction of other methods of taxing property on death, e.g. Legacy or Succession Duties; but we consider the present rates, which were fairly recently in- creased to a maximum of 20 per cent, high enough in the circumstances of Hongkong, where the much higher rates prevailing in, e.g., the United Kingdom, would add greatly to the incentive of evasion."
Evasion of Death Duties That report was dated April 5, 1939, and I am not aware of circum- stances which have arisen between then and now which render that de- liberate expression of view no longer sound.
As to how far evasion of death duties exists I do not feel competent to speak. But of this I am quite certain. If evasion could be pre- vented by zeal and vigilance it would have been effectively stopped by now, because I can imagine no one possessing greater zeal, and exercising greater vigilance, than the present holder of the office of Super- intendent of Inland Revenue and Estate Duty Commissioner, for whom, if he will allow me to say so, I hold a high regard. Indeed, I go further and say that it is the deliberate view of the legal profession as a whole that the zeal and vigilance exhibited by this conscientious officer have been so excessive in many cases as to occasion unjustifiable delay, incon- venience and expense to bona fide applicants for legal representation.
The powers conferred on the Estate Duty Commissioner for in- vestigating every estate are neces- sarily wide. But I suggest that in wielding such great powers regard should be had to the presence or absence of grounds for suspicion of evasion of duty, and that under normal circumstances the Estate Duty Commissioner should not at- tempt to reopen and resuscitate mat- ters adjudicated upon a long time ago.
Harsh Administration
It should be well known to Gov- ernment that family inheritance has always constituted a very important part of Chinese family life, and I do submit that excessive rates of levy, undue delay in obtaining legal repre- sentation, and harsh administration of the Estate Duty Ordinance, all constitute great incentive to evasion.
Sir, the Unofficial Members of this Council, as well as the Chinese Mem- bers of Councils, have had occasion to make various representations to Government on certain aspects of Government Administration during the past year. Pending their final outcome 1 feel it my duty to make a few general observations.
To begin with I wish to say a few words on the question of Food Con- trol.
The task of a Food Controller is obviously one of very great difficulty, and due allowance must be made for the fact that many things would have to be done in a hurry. I submit that the indispensable qualification of any Food Controller must be some com- mercial knowledge and experience, and, however well qualified in the theory of economics and conscientious in the discharge of his duties, the pre- sent Food Controller has had no commercial experience. The record of his administration has not inspired confidence that in an emergency all will be well as regards the question of food supply, and I record in this Council my grave doubt as to his ability in turning over certain re- serve food stocks-though the quan- tities purchased are infinitesimal to the quantities originally proposed- without very serious losses arising.
We know that the Food Controller has now delegated his powers in re- gard to rice to a business man more conversant with the subject.
Question of Firewood
I come now to the question of Firewood.
a
I understand that Government has at long last taken, or is taking, de- finite steps for the importation of firewood into the Colony. The Chinese Members of Councils had urged Government to take such step even before His Excellency Sir Geoffry Northcote left the Colony on leave. On August 3, 1940 a memo- randum on this question was sent in to Government, wherein it was urged that Government should requisition steamers for the purpose of importing