Enclosure 4
21st April, 1947.
REPORT OF THE COMMITTEE APPOINTED TO EXAMINE THE
INLAND REVENUE BILL
260
Your Excellency,
In accordance with the instructions conveyed in the Hon. Financial Secretary's letter No. 2/2391/47 dated 3rd April, 1947, and the following terms of reference:-
On the assumption that the standard rate will be ten per cent
(a) to examine the Bill in detail and to submit recommenda-
tions in regard to any provisions which in the opinion of the Committee might inflict special hardship on any section of the community;
(b) to examine the Bill with a view to detecting anomalies or conflict between provisions and to submit recommen- dations for their removal
we have examined the Inland Revenue (Earnings and Profits) Bill and submit our report and recommendations. For ease of reference we append a schedule of the Sections which we recommend should be amended showing the amended form beside the form in which they appear in the printed Bill.
fits
2. We recommend acceptance of the proposal to restrict the tax to "income arising in or derived from the Colony" instead of "income arising, derived from or received in the Colony". This reverts to the 1941 basis and we consider it is justified since many Hong Kon companies receive certain profits in the Colony for the sole purpose of distributing them to shareholders who are by no means confined to residents of the Colony. It is thought that any attempt to tax p remitted in this way might be inimical to Hong Kong's position as a commercial and financial centre. We recommend throughout the Bill, that the phrase "arising in, derived from or received in the Colog be replaced by "arising in or derived from the Colony" and that a Section 24 the words "premiums arising or received in the Colony", wherever they appear should be replaced by "premiums from life insurance business in the Colony", or "premiums from insurance business in the Colony", as the case may be.
3. We are of the opinion that it would be inequitable to impose a tax on earnings or profits retrospectively. As the Bill stai cv, this is inherent in its provisions since tax for the year of assess- ment 1947/48 would be based on the actual earnings or profits of the year preceding that year of assessment, without granting the taxpayer the right to have his assessment reduced to the actual earnings or profits for the year. We therefore recommend that the taxpayer under Chapter III and IV be given the right to require that his assersment be adjusted to the actual profits for the year of assessment, 1947/48. This concession would, of course, apply only to that year, since this difficulty arises solely because this is the first year of the introduction of such a tax. In future years, the "previous year" basis would be adopted except in those cases of commencement or discontinuance of a business which are already provided for in the terms of the Bill. We therefore propose the following provisos:-