5. Revenue on present basis of taxation is expected to total just under $192,000,000. This is well below total revenue expected for present year, which should amount to some $249,000,000 but with so many uncertainties it is not considered prudent to estimate for higher figure. Influx of population has automatically increased receipts from royalties from transport companies, Entertainment Tax, Liquor Duty, Bets and Sweeps Tax, Restaurant Meals Tax, etc., but large surplus is principly due to phenomenal revenue from tobacco. It is expected this will exceed estimate by seventeen million, which is equivalent to total amount collected from this source last year. This windfall is due to abnormally heavy exports of duty paid cigars resulting from the general unsettled conditions and interruption in normal distribution from Shanghai factories. There are signs that such exports are already falling off and they are certainly unlikely to be repeated on anything like present scale during coming year as, with more settled conditions, drawback will be claimed on increasing scale. On a much smaller scale, we have benefited from failure to claim drawbacks in respect of petroleum products but this also is not likely to last
6. On basis of present Public Works programme which could not be cut without deletion of some important projects, there will be deficit of seven million, which is likely to be increased by helf million by last minute additions. There will no doubt be strong pressure for this deficit to be met from surplus funds in view of large surplus of some sixty three and a half million Hús year.
This however would not be sound finance in present position of Colony and I propose to resist it. From a general discussion in Executive Council on the question of raising additional Prenue, I gained the impression that opposition to increase in standard rate of Earnings and Profits Tax is likely to be less vigorous than to an increase in rates. My original idea was to cover deficit by increase in rate of profits tax only but this would lead to difficulties, as professional men would have to pay increased rate of Profits Tax while others drawing salaries would not.
I therefore feel that there will be less opposition to smaller increase throughout and I propose to announce when introducing the Budget that an amending Ordinance will be introduced a little later raising standard rate to 15%. This would cover deficit and give surplus of several million but I cannot give exact extimate at this stage as final decisions have not been reached on several points. It is proposed to adjust graduations of Salaries Tax so as to soften blow at the lower end of the scale. Otherwise, in view of recent further increases in cost of living, there would be serious agitation for increased cost of living allowances.
7. I have little doubt that I shall experience extreme difficulty in securing agreement of unofficials to this increase in taxation and there will no doubt be strong efforts to postpone any
@dment to Inland Revenue Ordinance in the hope that there will be another windfall such as has occurred during present year.
8. I consider that it would be desirable to announce in Budget Speech that it is proposed to make substantial payment to sinking fund of the three and a half per cent Rehabilitation Loan. This would reduce surplus slightly which would all be to the good in view of increased taxation proposals. Payments are only made into the fund at rate of one per cent of total of issue and it was always envisaged that such payments would be augmented during good years. A payment of more than five million would be a little unrealistic
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