CO882-(8-9) — Page 546

PUBLIC RECORD OFFICE

Reference :-

C.O. 882

9

PUBLIC RECORD OFFICE, LONDON:

ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-| COPYRIGHT PHOTOGRAPH~~NOT TO

148

Tus system obtains in Singapore, and the present military contribution of that Colony, which appears as 20 per cent. of its revenue, would be reduced to 13 per cent only if the revenue administered by the municipality were included in the In Hong Kong precisely similar Colonial revenue assessable to the contribution duties are undertaken by the Government and the rates levied for municipal purposes tre subject to the percentage

This forms a valid argument for the advocates of a municipality, though in the reves; discussions on the subject during the passage of the Public Health and Building Ordiname it was shown by the principal spokesman of the Unofficial Members that a municipality was wholly incompatible with the conditions of Hong Kong

It is, under the The same principle applies to all remunerative undertakings. existing system of military contribution, less costly for the Government to farm out, or cutract for the carrying out of, such undertakings, since in that case only the net som paid by the contractor is credited to revenue, whereas were Government to undertake the work the gross earnings, including the cost of machinery, &c.. It seems would appear under revenue, and be assessable to military contribution. manecessary to point out that this is a vicious principle, for in many cases direct Government control may he preferable, and in every case the contractor's profits are lost to the revenue

chy Cramps exptusion The existing system cramps expansion-- Imperial as well as Colonial. If the Colonial Government undertakes the organisation and control of an institution only indirectly connected with the Colony, it is at a loss unless the institution provides a sufficient balance to cover military contribution, and sions paid by those directly interested towards the cost of maintenance become liable to this deduction.

Thus Hong Kong undertakes the upkeep of the Gap Rock Lighthouse, 30 miles From Colonial waters and in Chinese territory. For this service China pays a sum, In and upon this sum the Government has to pay 20 per cent. to the defence fund. order to be free of expense in the matter, the Colonial Government would have to mcrease the payment by China by 20 per cent, but this is clearly inadmissible because the accounts would show no such deficit, and China would, in fact, be called upon to contribute to the Imperial Forces.

Or, again, Hong Kong (largely in Imperial interests) maintains postal agencies at the Treaty Ports of China. Towards this service the Imperial Government pays £710 per annum, on which the Government pays 20 per cent to military contribution. The agencies would be worked at a small profit, but the 20 per cent. payable on the gross receipts derived from them convert this profit into a considerable annual loss to the Colony.

It was recognised when these agencies were instituted that the Colony was entitled to some profit to cover the extra staff and buildings required in Hong Kong (the maintenance of which falls on the Colony, and is not debited to the agencies). and in return for the work and responsibility involved. To secure this the Treaty Ports must pay the 20 per cent. to the military fund, which appears equally inadmis- ible, and for the same reasons as in the case of the Gap Rock Lighthouse. Other wise the Colonial Government must abandon this valuable service, and refrain from opening new agencies, so that Imperial as well as Colonial expansion is restricted. Some of the agencies have been established since the percentage was fixed.

In a similar case the Straits Settlements treat an extra-Colonial charge as a separate concern, and deduct the expenses of administration of Christmas Island from the revenue received, charging 20 per cent. on the net profits only, so that even uniformity is lacking in the present system.

(c) Inflicts a charge on items not properly revenue. It involves an apparent unfairness in charging on cross-entries, &c., and induces a consequent tendency to evasions. Illustrations of this may be multiplied indefinitely. One or two only need be adduced. A Government has expended certain monies on stores and on the The sale of revenue from which their cost was defrayed has paid 20 per cent. worn out stores is clearly, therefore, not a fresh source of revenue, yet being entered as a credit it has to pay 20 per cent. again.

Suppose the Government to have ordered a steamer and paid for it, and that after being in user short time it was found to be unadapted for the purpose

看着

149

required and is sold at a 25 per cent. loss; the money received, being credited to "Sale of Government Stores," again pays 20 per cent. to defence, and it would seem to be a reductio ad absurdum to regard a transaction upon which a 25 per cent. loss occurred as a taxable form of revenue. The procedure is merely adopted for convenience of accounting in accordance with Colonial Regulations. Again, the Government issues a quantity of subsidiary coins and makes a profit on the trans- action. Of this profit 20 per cent. is credited to defence. In the course of time, owing to redundancy or deterioration, Government withdraws the coins and sells them as bullion at a heavy loss, which it alone has to bear. Moreover, even the sun received for the sale is taxed with a 20 per cent. charge for military contribution! Or take again the question of stoppages and fines from the pay of police, &c. It is merely a method of accounting whether such deductions are made on the face of the pay roll (as is done in some Colonies), and the net amount disbursed, or whether the gross amounts shown on the roll are debited as payments (though in point of fact the total sums have never been paid), and the fines, &c., credited to revenue, and so amenable to the 20 per cent. deduction. The same thing applies to labour rolls in the Public Works Department, and vitiates comparison between works undertaken by Government and by contract. The Government in no sense realises a revenue from its liability to pay the full amount with deduction for fines or breach of contract. The liability is undoubted, but in such cases it is one which has not matured, and in a similar case (soldiers' deferred pay in Northern Nigeria) where the onus was the other way, the Imperial Treasury ruled that an unmatured liability must not be brought to account until matured.

One final illustration of a class which occurs daily will suffice. A person pays into the Treasury in the ordinary course a sum supposed to be due as licence fee, Crown rent, or premium on land, rates, &c. Later, for one reason or another, a claim to refund is established. It would appear to be immaterial whether the Government actually refunded the money or allowed it to be deducted from the next payment due. The former is, however, the method adopted under the present system of accounts in this Colony, and involves a loss of 20 per cent, to the Colonial revenue on all" refunds of revenue," which would be evaded by the alternative system.

Assessment on net profits not satisfactory.-It may appear as though these anomalies could be avoided by assessing to the payment of the percentage only such bona fide sources of revenue as are imposed by law or result as " earnings of Govern

Taking the Estimates of the current year (1908) the items shown in the annexure would, in the opinion of the Treasurer, be eliminated, and in order to preserve the contribution at its present incidence the percentage leviable on the properly assessable revenue would have to be increased to 20 97 per cent., or alter- natively the contribution would be decreased by $53,894 (say, £5,389). Argument, however, would assuredly arise as to which items should properly be eliminated. For instance, it might conceivably be urged that before the proceeds of a special licence imposed by law were credited to revenue the expenses of collection should be deducted.

ment.

The method proposed of levying the contribution on the balance or margin avoids all these difficulties, and equally disposes of the objections which are inherent in the system of a percentage on gross revenue.

It has the special merit of giving effect to Mr. Chamberlain's dictum that the contribution should vary from year to year with the prosperity of the Colony, an object which is not attained by the present system.

More increase in the business of administration, the inclusion of new territory, of additional schools, or of extra-Colonial agencies, &c., would make no difference to the margin or balance.

Table III. shows the relation which the military contribution bears to the margin" for a series of years, and the percentage of that margin which would be payable if the contribution were calculated to average the same amount as it does at present. It would be seen from this table that assuming the balance or margin to be a true indication of increase or decrease of wealth and prosperity, the amount actually paid has steadily increased in spite of the fact that the intervening years have seen a steady increase in taxation. The result is that in 1908, a year of extreme trade depression, with difficulties due to loss on exchange, on subsidiary coins, and on oplum revenue, the Colony, with fixed establishments which cannot be reduced, and which are not in excess of the business requirements, finds its margin reduced by the

24658

150

still increasing military contribution so that the amount available for public works stands at a lower figure than it has done for very many years.

F. D. LUGARD.

21st June, 1908.

ADDENDUM.