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HONG KONG LEGISLATIVE COUNCIL
THE FINANCIAL SECRETARY.—I am sorry that some Honour- able Members remain unconvinced that the Earnings and Profits Tax is the best or the most appropriate form of taxation for this Colony. I do not think, however, that anyone will dispute the fact that direct taxation is theoretically the fairest form of taxation. If it is properly administered, it is also in practice the fairest form of taxation and I hope that what my Honourable Friend the Colonial Secretary has just said on this aspect will have convinced Honourable Members that it is the firm intention of Government to see that the administration of the tax is efficiently carried out. Moreover, direct taxation such as is dealt with in this Bill has this great advantage over the various alternative suggestions which have been put forward in petitions and also in the course of this debate, namely, that `the incidence of the tax varies in proportion to the capacity to pay. It is equitable alike in times of prosperity and when bad times set in.
Of the alternative methods of taxation which have been proposed, perhaps the most wide-spread suggestion has been that some form of business licence should be substituted for the proposed Profits Tax, but a Sales Tax and a Customs Tariff on a limited range of luxury items have also been proposed. There is one general objection to all these alternatives and that is that in none of them can the rate of tax be adjusted to the capacity of the individual to pay to the same degree as is possible in the case of a tax on incomes. Moreover, all these proposals, and indeed many others, were examined with great care by the Taxation Committee at the end of last year. They were all rejected as unsatisfactory. There is a further objection suggested by the Honourable Mr. Watson this afternoon: he pointed out in the course of his speech that any form of indirect taxation which might be substituted for the present Bill and which might result in an increase in the cost of living might lead to a demand for an increase in wages from a class which is not affected by the terms of the present Bill.
The Honourable Mr. T. N. Chau explained that the Profits Tax was quite contrary to Chinese tradition. But he was prepared to accept the other three taxes covered by the Bill. He suggested that the Profits Tax should be cut out of the Bill and replaced by some form of business licence. He seems to be under the impression that this would work out quite simply and that assessment would be a comparatively simple matter. But when one analyses the proposal I think that one is forced to the conclusion that it would give rise to many complicated administrative problems. The Honourable Mr. Gillespie in the course of his speech has already dealt with some of the difficulties which would arise. As he pointed out, some form of business licence is most desirable from the registration point of view in order to provide certain basic information, and a small licence fee to be deducted from any Profits Tax ultimately paid was recom- mended by the Taxation Committee. For purposes of registration only a small tax would be necessary, but of the four taxes covered by the present Bill the Profits Tax is of course the one from which
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