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PUBLIC RECORD OFFICE
Reference
C.O.882/11
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-
PUBLIC RECORD OFFICE, LONDON |
COPYRIGHT PHOTOGRAPH—NOT TO
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(iii) Widows' and orphans' pension contributions.
, (iv) Lands sales.
(v) Interest and sinking fund on war loan.
(b) Inclusion of net receipts only of certain productive enterprises—
(i) Kowloon-Canton Railway.
(ii) Opium monopoly.
11. It is claimed by the Colony that if the assessment is to remain on its present basis, these qualifications are too narrow, and that if the new proposal that the assessment should be made on the rateable value is not accepted, further claims should be allowed in relief of the present scale of contribution. These claims, according to the Governor's despatch of 28th July, 1928, are as follows:-
(i) Profits on sterling securities when sold owing to the fall in exchange should
not be taxable for military contribution as they are at present.
(ii) Interest and sinking fund on capital expenditure on railways and similar pro- ductive undertakings financed out of revenue should be allowed at 6 per cent instead of the original 4 per cent allowed under Section 3 of the Ordinance. (iii) Other productive undertakings should be assessed on net receipts, as follows:-
(a) Wireless telegraphy.
(b) Waterworks.
(c) Aerodromes.
(a) Harbour dredging.
(e) Posts.
(f) Ferries.
(g) Municipal undertakings.
12. As to (i) of paragraph 11, Hong Kong states that these securities are due largely to the proceeds of land sales and may be considered as part of the Colony's capital. Differences in book values are not assessable; only when any profits are made owing to sales do they become assessable. Colonial Regulations 1928, paragraph 291, provide as to sale of securities that "no record of any profit or loss in relation to the purchase price will be made except in case of a sale of investments on account of surplus balances, when any resulting profit will be carried to current revenue and any loss charged to expenditure." This regulation does not distinguish between cases in which the profit (loss) arises from appreciation (depreciation) of sterling values and those in which the profit (loss) is due to a fall (rise) in exchange. Hong Kong has admitted that military contribution is payable on profits realized by a sale of securities at an appreciated sterling value, i.e., the Colony agrees that they are revenue (despatch No. 376 of 24th December, 1923(a)), but now proceeds to draw a distinction between such profits and those due to a fall in exchange. The War Office's view is that this distinction is not tenable. The amount involved is not known, but it cannot be considerable. There might be something to be said for treating these transactions on investments (i.e., those relating to surplus balances) on a "net receipts" basis.
13. As to (ii) of paragraph 11, it is agreed practice that if capital expenditure on "net receipts") is defrayed from railways and telephones (which are assessable on revenue instead of by loan, 4 per cent of the amount may be deducted (in addition to working expenses) from the gross receipts of the undertaking for a period of 50 years. The 4 per cent was calculated in 1904 and represents as to 3 per cent the cost of a loan and as to 1 per cent the necessary provision for a sinking fund. The rise in rates of interest since 1904 might be held to justify an increase of the 4 per cent. Any such increase might have to be extended to the other Eastern Colonies.
14. It should be noted, however, that the Colonial despatch of 1st November, 1928, which gives the financial effect of conceding the other claims enumerated in paragraph 11, does not give it either for (i) appreciation of securities or (ii) interest on capital railway construction. It is not possible to say what would be the financial effect of conceding these two points or either of them (though the amount is probably not large), nor is it clear whether the Colony intends pursuing these claims in conjunction with those at (iii) of paragraph 11.
15. As regards the claims under (iii) of paragraph 11, it would appear from the further despatch dated 1st November, 1928, that most of the classes of revenue there named are not put forward for assessment on net receipts but for total exemption from
(a) War Office letter to Treasury of 5th May, 1924.
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any assessment. This claim is based on the analogy of the Straits Settlements. Thus the claim does not appear to have been fully stated in the first despatches, and it now falls into two parts: —
(a) The assessment of net instead of gross receipts on certain productive under-
takings.
(b) The exemption of certain revenues from any assessment whatever.
The despatch of 1st November is by no means clear, and it is not certain that the classifica- tion of the various items adopted in this memorandum is precisely that intended by the Governor. Of the "examples of revenue to be specially treated given in paragraph 11 (iii) above, no account is taken in this memorandum of-
(c) the aerodrome,
(d) harbour dredging,
(f) ferries,
since (f) do not yet exist, (c) is not yet earning revenue and the interest on the sums expended on (d) in 1926-27 is negligible. Without further information, it is not possible to weigh the merits of these three items to be classed under either (a) or (b) in preference
to forming part of the assessable revenue. Paragraphs 16 and 19 below show the sums that the Governor claims would have been deducted from gross revenue in 1926 and 1927, if the remaining claims in paragraph 11 (iii) had been conceded.
16. Amounts which would be deducted from assessable revenue in respect of productive undertakings, if assessed on net instead of gross receipts.
(a) Wireless telegraphy
(b) Waterworks (alternatively shown under
municipal revenue ")
(e) Post Office
The War Office cannot check these amounts.
1926.
1927.
$
68,133.29
85,612.24
263,755.04
$331,888.33
336,885.29
$422,497.53
The 1926 figure against (a), viz.,
$68,133.29, is precisely the amount of the gross receipts from "Post Office messages ''; from it includes more than wireless and can hardly be the amount of "net receipts wireless. The other figures appear to be too high; it would be expected that the sum to be deducted from gross receipts in order to obtain "net receipts" would be in the region of the amount of gross cash expenditure with additions for pension contributions and interest on capital, but the gross cash expenditure on the Post Office (presumably inclusive of the wireless service(})) was:—
1926 1927
$
120,848.45 134,583.48
The difference between these two figures and those given above for the Post Office and wireless might be expected to represent broadly the pension charges and interest, and the amounts for these so arrived at seem far too high, so that the Governor appears to have deducted too much from the assessable revenue.
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17. As regards the principle involved in (a) of paragraph 15, the assessment of only of productive undertakings is, strictly speaking, limited to net receipts commercial undertakings not different in character and productiveness from railways (Treasury letter to Colonial Office dated 22nd June, 1899). This method of assessment has been in the past applied to telephones and tramways (both at the Straits in 1899), an opium factory (at the Straits in 1910) and distilleries (in Ceylon in 1912). In 1897 a waterworks was so treated (at Mauritius), but only after strong protest by the Home Government. The real feature of the "net receipts "principle is an endeavour to avoid burdening new construction with a heavy surcharge and thereby to remove an obstacle to Colonial development. This can be readily appreciated with railways, the more so that in 1895, when the principle obtained recognition, there were considerable plans of railway expansion. The Post Office, for all that it is a productive undertaking has always been treated as outside the scope of any such principle.
(h) No separate figures are given for the Wireless Service in the Hong Kong Blue Book.
(C38051)
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