HONG KONG LEGISLATIVE COUNCIL.
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It can be said, and it will no doubt be said, that this Bill is but In a sense this is of course an Income Tax Bill in a modified form. true. Indeed, in a sense, every tax, even an indirect tax, is a tax on income. But I venture to think that this Bill differs fundamentally from an Income Tax as it is generally understood.
Under the generally accepted theory of Income Tax the liability of firms and corporations depends, not on the question where the profits are made, but on the locality of the place from which their operations are controlled. This is not the case under this Bill. Moreover, unlike an Income Tax Bill, this Bill is not concerned with the identity of the individuals constituting a firm, so many of whom, as regards firms in the Colony, are non-resident. Again, unlike an Income Tax Bill, it is not concerned with the question as to how long a person has been resident within the Colony in relation to taxable liability, with the result that elaborate provisions have been omitted which would otherwise have been necessary, and which would be difficult, if not impossible, to enforce in the absence of a system of universal registration of persons or of passports for the whole of the population. In short, an Income Tax is fundamentally an individual tax, and must entail detailed enquiry into personal affairs.
This Bill is concerned with the four main classes of income separately, and deals with them in a way which would be impossible under an ordinary Income Tax measure. As their operation and effect are fully set out in the Report, and in the Bill, I need say very little. But in view of certain criticisms which have come to my attention I venture to make a few observations on the Salary Tax, and the Business Profits Tax.
As regards the Salary Tax, its operation is obviously limited by the statutory condition of liability, namely, that of a salary of $400 a month and upwards. A salaried man can claim a personal allowance of $3,000; a sum of $2,000 for a wife, and a sum of $1,000 for each child, with the proviso that the amount of allowances for wife and children must not exceed $6,000. A married man with four children can therefore claim a $9,000 allowance, and the tax in excess of this sum is only 4% on the first $5,000 taxable.
As regards the Business Profits Tax, the tax is at 5% in excess of $10,000 and up to $100,000, and at 10% in excess of $100,000. The tax is on the business and not on the individuals constituting the firm, so that no exact individual allowance can be given. The free allowance of $10,000 and the lowered rates of charge are given by way of corn- pensation for the absence of individual allowances. The overwhelming majority of Chinese firms have more than five, many have over ten, and some have over twenty, partners. It has been suggested that the Let me take an example. Salary Tax is unfair in relation to this tax. Suppose a firm of ten partners in equal shares were to make a profit of $100,000. At 5% on $90,000 the tax comes to $4,500. Now if the profit were taxed under the Salary Tax, and if each of the partners were
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