405
C. 14661/26.
(No. 298.) SIR,
70
HONG KONG.
No. 54.
HONG KONG.
THE GOVERNOR
ta
THE SECRETARY OF STATE.
(Received 26th July, 1926.)
[Answered by No. 55.]
Government House, Hong Kong, 24th June, 1926.
I have the honour to address you with reference to the method of assessment by which the amount of military contribution payable by this Colony to His Majesty's Government is ascertained.
2. I am not now concerned with the argument, frequently put forward, that the present method is illogical and unduly burdensome, because, whenever the Government is driven to increase taxation in order to meet necessary expenditure, a further burden equal to 25 per cent. on such increase in taxation is necessary to meet the military contri- bution payable on the increase in revenue. I am also not now concerned with the view, often expressed, that the military contribution has for many years been an unduly heavy drain on the Colony's resources. I am now solely concerned with the very great desirability-I had almost said, the necessity-of arriving at some basis of calculation which will eliminate the constant difficulties and differences of opinion to which the present system of assessment is continually giving rise.
3. You are well aware of the difficulties and discussions which have arisen in the past, but it may be convenient to recall a few of them by way of example.
4. The question of the proper method of accounting for the proceeds or value of stores sold, or returned to store, or recovered from a previous work and used again, was discussed at intervals from 1909 to 1922. Upon the method of accounting turned the question of liability to military contribution. In 1909 an unwanted hospital hulk, the Hygeia, was sold for $25,000. The proceeds were at first credited to Miscellaneous Receipts, but were afterwards transferred to the credit of the original head of expense, i.e., Public Works Extraordinary. The latter method of accounting was disapproved by the Secretary of State in his despatch No. 232 of the 20th July, 1912*, and the result for the time being was that the proceeds of any such sale paid military contribution a second time. In 1919 a somewhat similar question arose as to the proper method of accounting for certain stores which were recovered from a previous work and used over again. The effect of the decision on this point was to make military contribution payable twice over on the value of such stores so recovered, and apparently the position was the same as regards the sale of condemned stores. This was pointed out and in 1922 the Army Council and Treasury agreed to a mode of accounting which avoids the above result. The point here is that this source of friction and dispute was not settled until 1922. See the Governor's despatch No. 161 of the 19th May, 1919†, the Secretary of State's despatch No. 68 of the 26th February, 1920, the Governor's despatch No. 259 of the 4th July, 1921§, and the Secretary of State's despatch No. 129 of the 29th April, 1922}].
5. It was not until 1910 that it was laid down that refunds of revenue should be deducted from the gross receipts liable to military contribution: see the Secretary of State's despatch No. 116 of the 29th April, 19104.
6. One recent instance, on which I propose to address you in a separate despatch. is the question of whether it can properly be assumed that a profit or loss in exchange is made whenever a sterling investment happens to be sold or a sterling balance in the hands of the Crown Agents happens to be drawn upon. The matter is too complicated to elaborate here, but I think it can at least be said that considerations are involved which had not been put before you by this Government at the time when you wrote your despatch No. 431 of the 26th November, 1925**. This particular difference of opinion has taken 25 years to come to a head.
* 20848/12: not printed.
45489/21: not printed.
†40080/19: not printed. 16110/22 not printed.
** 47207/25: not printed.
40080/19: not printed. 11667/10: not printed.
71
I
7. A question which may soon become acute is that of revenue collected for the service of loans raised for such objects as the construction of waterworks and harbour works. The present Ordinance recognizes the principle of exempting from military contribution revenue raised for the service of loans utilized in the construction of railways and similar productive undertakings. The exemption is not an absolute one but the principle is recognized. The rule is that the charges for working expenses and main- tenance, and for the service of the loan, are deducted from the gross receipts and the military contribution percentage is struck only on the resultant net receipts, if any. suppose that one ground of this exemption is that the construction of, e.g., a railway, increases the earning capacity of the Colony, in a particular way, and that accordingly it enables an increased contribution to be paid to His Majesty's Government. If harbour works were such that they produced a revenue in excess of working expenses, main- tenance, and loan service, the case would be fully met by the existing exemption; but it is quite possible that harbour works might be practically unproductive of revenue directly, and the revenue from water does not even approach the relative outgoings. Yet such works undoubtedly tend to increase the general earning power of the Colony and thus lead to an increased military contribution. If such works were not constructed, or had for financial reasons to be delayed, the development of the Colony would be checked and the general revenue would suffer.
8. One example of a possible future dispute has been given. It is obviously impossible to foresee what differences of opinion on the incidence of the contribution may emerge hereafter, but the past history of the subject scarcely encourages the hope that all sources of friction have been smoothed over. Twenty-five years have not sufficed for
this task.
9. In view of these frequent discussions, of which I have given a few examples, it seems highly desirable to endeavour to find some system of assessment which will be clear and definite. If such a system can be found, and if, while eliminating discussion and difference of opinion, it at the same time clears away some of the existing anomalies of, and objections to, the present system, without depriving His Majesty's Government of the assistance that may reasonably be expected from the Colonial Government on the basis of past contributions, the adoption of the new system would seem to be a foregone conclusion.
10. One great objection to the present system is its uncertainty. It is impossible for either the Colonial Government or the Military Authorities to estimate at the beginning of the year with any degree of certainty what the amount of the contribution for that year will ultimately be. The Secretary of State's despatch of the 24th October, 1900, C.O.D. No. 337*, shows that one of the objects of the present system was to introduce greater certainty in this respect, but it has largely failed in that purpose, as it has also failed in its other aim, which was to close a constant source of dispute and to avoid the serious delays which had taken place under the former system owing to discussions as to the incidence of the contribution.
11. An anomaly of the present system is that in some cases the Colony pays military contribution on revenue which it collects for other administrations. One instance of this is postage. An example will illustrate this. The minimum rate of postage for a parcel From Hong Kong to the United Kingdom is 90 cents. The military contribution paid on this is 18 cents. 70 cents of the 90 cents, however, has to be credited to the United Kingdom, Hong Kong retaining only 20 cents. The net result, therefore, is that Hong Kong receives a net revenue of 2 cents and the military contribution is nine times the
amount.
12. Another anomaly is that, if this Government undertakes the maintenance of a service outside its territory, the cost of which is paid by a foreign administration, the only way in which the Colony could avoid loss would be to add to that cost so paid a sufficient amount to cover the military contribution payable. This would be indefensible in principle because the foreign administration would then in effect be required to contribute to the upkeep of His Majesty's Forces. An instance of this is the Gap Rock lighthouse.
13. The instances given in paragraphs 10 to 12 above are merely auxiliary to the main point of this despatch and are mentioned only as illustrations of incidental advantages which would follow the adoption of the system of assessment which I now propose.
14. My proposal is that the military contribution for the whole of any given year should be a certain percentage of the annual valuation made during the previous year under the Rating Ordinance, No. 6 of 1901. As this valuation extends to the whole of the island of Hong Kong, Kowloon, and New Kowloon, it covers all the most important
* 20764/1900: not printed.
(C38051)
6:2
PUBLIC RECORD OFFICE
Reference :--
C.O.882/11
PUBLIC RECORD OFFICE, LONDON
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