CO882-(4-5) — Page 302

PUBLIC RECORD OFFICE

Reference :-

C.O. 882

5 PUBLIC RECOR

ALLY WITHOUT BE REPRODUCED PHOTOGRAPHIC-

COPYRIGHT PHOTOGRAPH-NOT TO

E. LONDON SION OF THE

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from a course of action which is not imperatively called for. Whether the necessity for a general land tax may hereafter be considered to have arisen, and whether the island will then, or within any measurable distance of time, be deemed ripe for it, are questions which need not be entered upon.

15. Before proceeding to consider the question whether, and, if so, how, the revenue should be recouped for the loss of the Paddy Tax, it remains for me to glance at one strongly urged objection to its abolition. It has been said that if the home-grown-paddy tax goes, the import duties on grain must go too, and that this will practically ruin the finances of the Colony, and be specially hurtful to the paddy growers, as all expenditure on roads and irrigation must be stopped. I have already observed that I am not prepared to admit that there is a legal connexion between the two imposts. As a matter of law it cannot be doubted that the Legislature can abolish the Paddy Tax without touching the rice duty. Nor is there any connexion between the two imposts from the point of view of economic or fiscal theory, and in this opinion, I am glad to observe, that I have the concurrence of several meinbers of Council, as well as of such able officials as Mr. Saunders and Mr. Twynam. The import duty does not appear to act as a protective duty in the true sense of the term, that is to say, it does not exclude the taxed article, or give the home-grown article the monopoly of the local markets, for whilst it is in dispute between experts whether paddy growing is decreasing, or about holding its own, it is certain that the import of rice has increased enormously. The failure of the import duty to act as a protective duty is not alone explained by the theory that the Paddy Tax is prohibitive of cultivation in all save favoured districts, but is largely due to the fact that island-rice and imported rice are, to a great extent, different articles from a commercial point of view. Only a small proportion of the island rice crop comes into the market at all, and such as does come is not purchased by or for the estate coolies, who are the chief consumers of imported rice. It can hardly be contended that the estate population will have a grievance if island paddy is freed from taxation, because it is generally recognised that were the import duty remitted, it would be either the chetties or the planters who would benefit by the remission; but it is strenuously argued that the town labourer would feel a grievance if he had to eat "taxed rice," whilst the peasant was eating rice tax-free. If such a grievance were felt by any town labourer, there would be nothing simpler for him than to buy and consume island rice, of which some is stated to be on sale in every bazaar. I do not, however, anticipate that the town labourer will experience any sense of injury. I have sufficient confidence in the shrewdness of such labourers to anticipate that they would feel no such grievance.

In truth when the advocates of the tax predict that the two imposts must stand or fall together, they are not so much thinking of anything which may happen in Ceylon, as of what they fear may happen in England.

16. From what I have said, however, I must not be understood to advocate the permanent continuance of this import duty which belongs to a class of taxes which it has long been an object of policy with this Department to modify or repeal. But the question must be looked at wholly from the point of view of revenue. arrived when the abolition of one of the taxes can be secured, and I fail to perceive The time has why by far the more objectionable of the two taxes should be retained because the repeal of both cannot at present be advocated. If revenue greatly increases, without a corresponding increase of necessary expenditure, I should not hereafter be indisposed to entertain the question of modifying the import duties.

17. As I do not perceive the necessity for repealing the import duties, it will be understood that I do not accept the argument of the Select Committee of the Legislative Council, that, as a consequence of the repeal of the Paddy Tax, expenditure on roads and irrigation must be stopped, and a grave injury and injustice thus done to the paddy growers themselves.

There is, I apprehend, however, no antagonism between an opinion that the Paddy Tax ought to be abolished and an opinion that irrigation ought to be developed. I am in favour of expenditure on irrigation, and wish to see a sufficient provision for it in each year's estimates; but, of course, until the revenue proves its power of recovery after the repeal of the Paddy Tax, your Government would not enter on any irrigation works of an extensive character.

18. The question then arises what fresh imposts, if any, should be imposed in order to make good the loss of the Paddy Tax? For the 12 years ending with 1888, the average gross yield of the Paddy Tax was something over Rs. 1,000,000 a year, but it has since shown a marked tendency to decline. If the tax had been

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retained, I assume that admittedly there would have been no alternative but to adopt the scheme of the Select Committee, which would have entailed such a reduction in the gross receipts that, taking into account the cost of collection and the increased work of survey recommended by the Committee, the amount on which the Ceylon Treasury could have counted would not have been more than Rs. 500,000 net revenue I do not see any grave objection in principle to the additions to taxation whereby you propose, in your Despatch, No. 392, of the 15th of October, that this net loss should be made good, viz.,—

per annum.

Succession and legacy duty (stamp) Import duties

Salt

Total

Rs.

75,000

285,000

140,000

500,000

19. But I may observe that the succession duty, although sinall, would, it may be feared, evoke criticisms which you do not apparently anticipate, and the additions to the tariff, although slight and reasonable in themselves, could hardly fail to meet with objection from the mercantile community, whilst the increase to the salt duty, though leaving it at a reasonable amount, is a proposal as to which much prejudice and a certain amount of outery, would have to be reckoned with. In these circumstances it

is a question well worthy of your consideration and that of the Legislative Council, whether any additions to taxation should now be proposed, although I fully admit that the financial condition of the Colony has to be carefully considered, and that it is not desirable to trench too largely upon its resources: There has, however, been a surplus

each year for some years past, and the balances must now exceed the sum of Rs. 2,000,000. In the year just ended, as you have informed me in reply to a telegraphic inquiry, the surplus was approximately Rs. 1,600,000, the revenue having nearly reached the sum of Rs. 18,000,000. It is a general rule in finance, that where there is a mischievous and embarrassing tax and a surplus which covers it, the tax should be remitted, and no other put on in its stead, the confident expectation being always entertained that through the relief afforded to industry and the increased spending power of the people, the revenue will not be long in recovering its former level. Such a rule seems to me, as at present advised, not inspplicable in this case. If this view is accepted, all that will remain to be done, is to obtain from the Legislature the passing of the measures necessary to give effect to the decision now arrived at as to the Paddy Tax,

I have, &c. (Signed) KNUTSFORD.

Sir Arthur E, Havelock, K,C.M.G.