4. In urban areas fifty-one stills altogether were discovered during this year. This represents a decrease of twenty-one compared with last year's figures, and is probably due to the fact that rents have increased so much owing to the increased population, that it is no longer possible to rent a whole house or at least a floor, a proceeding which is absolutely essential for the operation of an enterprise of this nature.
5. The working of local distilleries during the year proved satisfactory, and the reformed method of inspection and accounting instituted in the previous year appears to have been attended with success.
6. There was a certain amount of evasion of duty as regards the import of perfume spirit. Suitable action was taken after this fraud had been detected. It would be well if the public generally realised that all liquors containing alcohol must be declared before landing.
II. TOBACCO.
7. The total consumption of tobacco of all kinds for all purposes during the year 1938 was 7,564,035 pounds which, by comparison with last year, is an increase of 1,685,008 pounds. The total net revenue was $5,190,701 which was a record for the Colony and represents an increase by comparison with last year of $758,498. The amount of drawback paid was $3,337,335 and is also a record for the Colony. The increase in revenue is due to the increased population consisting mostly of refugees from the interior.
8. The enormous increase in the local manufacture of cigarettes for export is due chiefly to the breakdown of economic conditions in China, which has resulted in orders being transferred to Hong Kong in order to ensure their successful completion.
9. There has been a decrease in the amount of clean leaf imported, and it seems that importers are finding it cheaper to strip their tobacco in Hong Kong rather than in Macau.
10. Cigarettes account for 94% of the revenue collected on tobacco. Although there was a slight decrease in the sales of local factories producing Chinese smoking tobacco, there is little doubt that cigarettes have become more popular than ever before with the local Chinese population.
11. Only 6,900 cigarettes were seized during the year. This great reduction upon the figures of the previous year was chiefly due to the low price of cigarettes in Hong Kong which made this type of smuggling unremunerative.
12. Smuggling of Chinese tobacco from Macau persisted throughout the year. Towards the end of the year it became necessary to request shipping companies to co-operate in suppressing this traffic. In some cases very satisfactory results were achieved, which seemed to indicate that the petty smuggling by members of the crews can be curbed by the action of responsible officials on board ships.
13. Several well organised attempts at smuggling tobacco by false declarations of the contents of packages were discovered. The most serious of these was one in which 900 pounds of tobacco were consigned to a fictitious firm under the guise of soy. One of the real culprits, however, was brought to justice and convicted in respect of the 900 pounds imported and also in respect of an additional 285 pounds found on his licensed premises. A peculiar feature of this importation was that a portion of the consignment was partly manufactured tobacco, indicating that the final stage of manufacture would be carried out by a local factory and would thus defy identification as being other than of Hong Kong manufacture.
14. One other attempt by a local factory to defraud the revenue by mixing lily leaves (after treatment) with leaf tobacco in the process of manufacture was frustrated in its very early stages, and suitable action was taken by cancelling the manufacturer's license.