no - including Has x
grant
Mr.
1.
Bourdillon
No. (13) is a very complete summary of Hong Kong's budget prospects for 1949/50 with references also to some of the longer term prospects. ee important comments were contained in our telegram at No.(6) in which we expressed the desirability for increased taxation in order to reduce inflation and to obviate as far as possible the need to raise further loans to meet capital expenditure. In particular we asked whether an increase in the income tax rate were feasible, the present standard rate only 2/- in the pound. When it is remembered that many of the bigger companies in Hong Kong are not registered in this country and thus are not liable in total for income tax at the rate of 9/- in the pound, it seems there is considerable scope for increasing the Hong Kong rate of 2/- in the pound. Admittedly Hong Kong does not need any increased taxation to balance its budget, but if an increase could be effectere without hardship on the local population, it would save Hong Kong having mot
to raise loans to meet certain rehabilitation or even neesamiation expenditure and Hong Kong is only able to raise local loans with difficulty and the prospects of raising a loan in this country, even if it were approved by the Treasury, are not very bright at the present moment in view of conditions in China. However in paragraph 52 of the Governor's despatch he recommends that there should be no increase in the present rate owing to the increased inducement to evasion which any increase in the rate would revive, and in the Income Tax Department is not staffed to deal with such evasion. Although income tax was only introduced as from 1/4/47 it is already expected to produce $40,000,000 in 1949/50 out of a total revenue of $180,000,000 i.e, nearly a quarter of the total revenue. The $40,000,000 is probably a conservative estimate. In Singapore the present rate of income tax on companies is double that of the rate in Hong Kong, and I cannot help feeling that a modest ingrease of the Hong Kong rate from say 2/- to 3/- in the pand would not cause any hardship or would unduly increase the temptation to evasion; whilst an additional $20,000,000 of revenue would be of considerable assistance to the Hong Kong Government in meeting its capital expenditure for which loans could not be raised.
2.
cannot
As regards the immediate budgetary position the position is not unsatisfactory. By 1st April 1948 there was a surplus of $37,000,000 which had increased to $65,000,000 by 1st April 1949. In 1949/50 a balanced budget has been provided, but only after taking into account £1,000,000 ($16,000,000) grant from H. M. G. and various rather small increases in revenue estimated to produce $2,800,000 in all. The tdal revenue, excluding H.M.G's grant, is estimated at $180,000,000 compared with $192,000,000 revised estimate in 1948-49. It seems therefore that in view of the increased taxation which has been imposed, referred to above, that the estimate of $180,000,000 is on the conservative side, and that providing present conditions continue revenue might well amount to $200,000,000 in all. The expenditure estimate of $179,000,000 will probably be reached and might even be exceeded if continual heavy expenditure on internal security proves to be necessary. Nevertheless a budget surplus is possible. In paragraph 16 the Governor foreshadows a possible increase in revenue of $2,500,000 in respect of rates on property provided an increase of 100% over pre-war rents were to be allowed instead of the existing increase of 45,0. If the Governor decides to proceed with this proposal the matter will presumably be referred home to us separately.