87
Encl. 4
was almost entirely an unofficial body would render the Bill
more palatable to the general public. The committee pursued
their task with great energy and submitted very valuable
recommendations which are set out in the enclosed copy of
their report, and all of which proved acceptable to Government
There is no doubt in my mind that this move, together with the
prior acceptance of the figure of 10% for the standard rate,
was responsible for the breakdown of the united front against
the Bill which had hitherto been evident.
9.
Although not provided for in the London draft, it
was later proposed to tax income arising in, derived from or
received in the Colony, and such a provision was included in
the draft published for general information on the 7th March.
The Committee recommended that tax should be restricted to
income arising in or derived from the Colony. This was the
same basis of taxation as in 1941 and, on further considera-
tion, the amendment proposed by the committee appeared to me
to be justifiable. This Colony differs from the majority of
Colonial dependencies in that a number of head offices of
important businesses are established here. Profits resulting
from business activities in other countries must pass through
the books of the head offices and if such profits were taxable
here all sorts of complicated claims in respect of double
taxation would arise. The committee felt that this might tend
to discourage firms from establishing their head offices here
and that Hong Kong's position as a financial and commercial
centre might be adversely affected.
10.
The committee were of the opinion that to charge tax
for the year of assessment 1947/48 on the profits made in
1946/47 without granting the taxpayer the right to have his
assessment for this year adjusted to the actual profits arising
during the year was retrospective taxation which they considered
unsound in principle. In view of the large profits made during
1946/47 which are not likely to be repeated in 1947/48, I was
reluctant to agree to this change but finally decided to accept