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Mr. Caine
I think you should see the draft memorandum at (3) opposite setting out the lines on which Mr. Pudney has drafted an Income Tax Ordinance for Hong Kong as a result of his discussions with Mr. Emanuel and the Board of Inland Revenue.
The memorandum explains that the Ordinance has not been drafted on the standard lines but is intended as a halfway house between the existing system of direct taxes in Hong Kong and a normal income tax. As recorded in my brief minute at (4), it seems to me that Mr. Pudney is to be congratulated on the ingenious manner in which he has tackled the situation.
Mr. Pudney is looking in to-morrow for the last time before his departure for Hong Kong and kir. Emanuel has suggested that we ought to let him know then that we are in general agreement with his proposals. I myself think that we should tell him this but Mr. Mayle feels that further consideration ought to be given to the question of a sur-tax (which Mr. Pudney considers would be impracticable as an immediate measure) and that we ought to consult the Treasury before expressing our general agreement.
Perhaps as a compromise we should tell Mr. Pudney that we ourselves are in general agreement with his proposal though with a reservation on the sur-tax point that we would like to give the Treasury the opportunity of commenting but that we will convey the final decisions as soon as possible in a telegram to the Governor.
I should perhaps add that in view of the shortness of time, I have not made any attempt myself to read through the draft Ordinance, my study having been confined to Mr. Pudney's memorandum explaining the effect of his draft.
dictated by J.B.W.
Mr. Meyle.
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Mr. J.B. Villems. †
Wila
16.1.47.
I agree generally with Mr. Williams' minute above and hope that Eastern Department will agree to our speaking to Mr. Pudney on the lines he suggests. I have not had time to examine this in detail, but, in general, I agree that, it is probably the best compromise we can get in Hong Kong conditions. We should, I think, urge Mr. Puẩney to get the standard rate up as high as possible with suitable provision for lower rates on the early sections of a man's income in those cases in which he is under the Ordinance or elects to be assessed on an individual basis. As he recognises, the higher the standard rate the greater will be the pressure to opt for the individual basis and, therefore, the nearer we shall get to a full income tax basis.
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16. 1. 47.