. PUBLIC RECORD OFFICE
Reference :-
C.O.882/11
PUBLIC RECORD OFFICE, LONDON
ALLY WITHOUT PERMISSION OF THE BE REPRODUCED PHOTOGRAPHIC-
COPYRIGHT PHOTOGRAPH-NOT TO
C. 82756/31 [No. 2].
SIR,
102
No. .69.
COLONIAL OFFICE
to
WAR OFFICE.
[Answered by No. 70.]
Downing Street, 27th February, 1931.
With reference to your letter of the 10th of July, 1930*, regarding the method of assessing the military contribution of Hong Kong, I am directed by Lord Passfield to transmit to you, to be laid before the Army Council, a copy of a despatch from the Governor of Hong Kong enclosing a copy of a memorandum by the Deputy Colonial Treasurer regarding the exemption of certain items of revenue from assessment, and to express the hope that the Council will consider favourably the proposals contained in the memorandum.
2. If the other claims referred to by the Deputy Colonial Treasurer are admitted, the Secretary of State will not press for a return of the assessments made in the past years on the gross revenue of the waterworks, although they appear to have been actually contrary to law.
I am, &c.,
C. 82756/31 (No. 9].
No. 70.
WAR OFFICE
to
SIR,
COLONIAL OFFICE.
WALTER D. ELLIS.
The War Office, London, S.W.1, 7th August, 1931. I am commanded by the Army Council to refer to your letter of 27th February, 1931‡, and enclosed despatch from the Governor of Hong Kong and memorandum from the Deputy Colonial Treasurer, regarding the claims of the Colony for exemption or other special treatment of certain items of revenue in assessing the gross revenue which is liable tó military contribution.
It is a long time since there has been any considerable discussion of the general principles governing the method of calculating the revenue assessable to military con- tribution, or of the treatment of claims for variations in the assessment of the gross revenue; and for this reason, and also on account of certain misconceptions in the Colonial memorandum, the Council have thought it desirable, in order to facilitate discussion between the two Departments, to embody their comments on the proposals of the Govern- ment of Hong Kong in a memorandum which first recapitulates in historical form the general principles relating to assessment of revenue and then deals with the Colonial claims in detail. A copy of this memorandum is enclosed.
On the basis of the principles detailed in the memorandum the Council offer the following observations on the Colonial claims.
(A) Wireless Telegraphy. It is considered that the revenue from wireless telegraphy might be treated on the basis of net receipts as being a new commercial undertaking similar in character to railways and telephones.
As regards raising the rebate on capital expenditure from revenue from 4 per cent. to 6 per cent. it is considered that some increase above 4 per cent. might be justified in respect of such capital expenditure incurred between 1915 and 1930, the increase to run from the current year to the end of the several periods of 50 years for which the rebate is permitted. It is suggested that a rebate of 5 per cent. would be adequate and that the increase should be similarly applied to capital expenditure met from revenue between the dates mentioned above on any other undertakings in the Colony approved for treatment on the basis of "net" receipts. As long term rates of interest are now lower again the increase to 5 per cent. should not apply to expenditure after 1930.
(B) Use of Government Motor Vans. It is considered that the revenue from this source might be treated on the basis of net receipts if it can be clearly established that it arises from an undertaking outside the normal functions of the Hong Kong Government, i.e., that besides being commercial in character it is not an activity which that Government would normally undertake on its municipal side.
* C. 72856/30 [No. 3]; not printed.
↑ No. 68.
‡ No. 69.
103
(C) Gap Rock Lighthouse.-This item has always been in the revenue and it is con- sidered that it should not be excluded now.
(D) Anti-Piracy Escorts. The revenue from this item might be totally exempted from assessment to contribution on the grounds of the special circumstances in which the service is given and because the provision of the escorts is somewhat foreign to the Colony's general governmental activities.
(E) House Service Account.-The revenue from this item might be totally exempted, as it would appear not to be revenue but a reimbursement of expenditure of a special kind. (F) Over-payments.--Further information as to the nature of these over-payments is desired before considering this case for exemption.
(G) Waterworks.-It is considered that as the gross revenue from waterworks has always been included in the assessable revenue a case cannot be established for treating this source of revenue on the basis of net receipts without at the same time increasing the percentage on which the military contribution is calculated. It follows that the rebate on the capital expenditure met from revenue should not be allowed, as this would involve treating the waterworks revenue at least partially on the basis of net receipts.
The Council notice that the question raised by the Governor of Hong Kong in para- graph 6 of his despatch of 24th June, 1926*, and in his despatch of 10th September, 1929†, regarding the treatment of gains on the sale of securities is not referred to in the Deputy Colonial Treasurer's memorandum of 9th December, 1930, and I am to ask what is the present position of this claim for exemption of revenue, with particular reference to the statement in paragraph 6 of the despatch of 10th September, 1929, that an amount of $504,104.70, has been withdrawn from the military contribution and is standing to the credit of the " Suspense Account Military Contribution" in the accounts of the Colony. The Council will be glad if these observations may be considered by your Department in the light of the general principles contained in the memorandum, and I am to suggest that if they commend themselves to the Secretary of State for the Colonies the approval of the Treasury should be obtained for the proposed concessions. The Council will be prepared to nominate a representative to discuss any details or points of difficulty with your Department in conference if this should be desired; it is understood that the Treasury would prefer that the two Departments should agree upon a basis before Their Lordships' approval is sought for any changes.
In connexion with the questions referred to in this letter an examination has been made of the returns submitted by the Colonial Government annually in support of their calculation of the amount of the military contribution. It has been discovered that under the provisions of Section 15 of an Ordinance (No. 14 of 1927), the Colonial Government has since 1928 deducted the following amounts from the revenue assessable to contribution on account of charges for a loan for waterworks, etc. :—
1928 1929
1930
Total
$
380,000
628,000
628,000
$1,636,000
and that a similar deduction of $628,000 may apparently be expected for a number of years to come until the loan is paid off; the resultant loss to Army Funds to the end of 1930 amounts to approximately £29,000. The Council learn on inquiry that, contrary to the long-established principles relating to all modifications affecting the military contribu- tions, the approval of your Department has inadvertently been given to the Ordinance in question without the requisite prior concurrence of the Lords Commissioners of the Treasury and of the Army Council.
The Council gather that sanction to the inclusion in the Ordinance of the power to make deductions for the service of the 1927 loan was given on the supposed analogy of the similar deductions by Ordinance No. 12 of 1916 which was approved by the Treasury and permits of deductions for the service of a War Loan raised in connexion with the contribution made by the Hong Kong Government towards the cost of the war. The Council are unable to see any analogy between the two loans, and they would not have been prepared to agree to the power of deductions which has been approved.
As the deductions up to and including 1930 have been made by the Colony under the sanction of your Department given in 1927, the Council feel that it is unfortunately
• No. 54.
(C38051)
† C. 62916/2 C/29 [No. 1]: not printed.
Enclosure in No. 68.
12
421
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