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2. In September, 1946, in view of the urgent need for revenue to secure as large a degree' as possible of independence from H.M. Treasury in the United Kingdom, a Taxation Committee was appointed with, inter alia, the following terms of reference:—
(ii) To consider in particular-
"(c) Whether, and if so by what date, it will be "expedient to replace the taxation now autho- "rised by the War Revenue Ordinance by the "introduction of an Income Tax.'
In December, 1946, the Committee reported as follows:-- "7. We have discussed at length the question of the "imposition of an Income Tax in the place of the "taxation at present authorised by the War Revenue "Ordinance of 1941.
"It was generally agreed that the imposition of a "tax on incomes would theoretically result in the most "equitable distribution of the burden of taxation and "that a tax on incomes is inevitable here if the budget "of the Colony is to be balanced and if Hong Kong is "to conform to the standards generally expected in the "middle of the 20th century. Complete new income "tax legislation will take a long time to prepare and "cannot possibly be brought into operation in sufficient "time to collect tax during 1947 on the basis of income "which accrued during the year ending 31st March, "'1947. We consider it essential that in order to meet "local conditions any income tax legislation must be as "simple as possible and some departures from general
'practice elsewhere will be necessary.
"The War Revenue Ordinance, 1941, is still tech- "nically in operation as no Peace Treaty has yet been "concluded. This was, however, always regarded as a "purely temporary measure and it did not in consequence "contain a number of provisions which would normally "have been included in permanent legislation of this "kind. In the main it operated fairly satisfactorily "but, if it is to remain in operation, certain modifica- "tions will be desirable such as provision for deductions "in respect of Life Insurance premia and the carrying "forward of losses against future profits.
"Thus even if the War Revenue Ordinance were "left on the Statute Book a good deal of amendment "would be necessary and as the introduction of com- "pletely new legislation before the end of the present "financial year is not a practical proposition we recom- "mend that the present War Revenue Ordinance should "be completely recast incorporating such amendments "and additions as may be found desirable. In recasting "this legislation we are of opinion that Government 'should consider means to allow rehabilitation costs as "a charge against profits during the next few years.
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"We recommend that the taxation year should "remain as at present, i.e. ending on the 31st March. "and that taxes similar to those levied under the War "Revenue Ordinance be reimposed with effect from the
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