A
royalty would almost certainly have been admitted as a proper deduction for purposes of computation of profits under the War Taxation Ordinance.
The remainder of the Bill seems to be
more or less exactly as I had agreed. The simple fact is that the company had got to the position Where it was making profits considerably in
excess of the amount needed to pay its standard dividend of 12% and the time as approaching when under the old rovisions part of the profits would have to be devoted to reduction of charges.
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The company were reluctant to beay and they thought charges were on nearer approach the actual working out of the provisions in the old ordinance booked as if it Was going to give rise to a great deal of difficulty. For a year or to the directors have been deliberately concealing the true profits by excessive depreciation provision but clearly they could not go on doing that much longer. They came to the Government therefore, with proposals for revision of the ordinance which in their original form woulu have handed the bulk of the excess profits now being earned to the shareholders. After considerable negotiation Government made a bargain which in effect divided the spoils between the shareholders and the revenue. Of the immediately available profits Government has certainly got the larger shure in the considerable new free services and rates of charges on its own lines and half of Frofits in excess of 12,. here the shureholders benefit is principally in the prospect of future profits as the absolute maximum of 15% dividend is removed while they are also able to distribute a little more than 12 at once without disturbing their rate structure. On the whole I think it was a fair bargain and it seems to have attracted no adverse criticism from the point of view of the telephone subscriber at whose expense the arrangement has in effect been made. An advantage which is not referred to in No. 2 but which I resume has been reported in confidential or secret despatches, was that the new branch exchange provided to take care of the Government telephone system was in fact installed last September in a place of security and was so arranged as to be capable of serving as an emergency exchange for essential defence lines for the whole of Hong Kong island. is, in peacetime it was to be an ordinary Government branch exchange and in case of emergency other lines would be substituteâ connecting with the minimum of essential telephones.
Sanction LF
That
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5.40.
& then reare to 301
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