CO885-11 — Page 427

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PUBLIC RECORD OFFICE

Reference :-

PIC.O.882/11

PUBLIC RECORD OFFICE, LONDON

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

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The principles involved in the assessment of "net receipts undertakings are given in paragraph 4 above.

only of productive

On the analogy of telephones and as receipts from the wireless service as a class of revenue did not exist in 1895, there is a case for consideration for treating this undertaking on the basis of "net receipts."

The financial effect of granting this claim would be to reduce the contribution in 1930 and 1931 by about £2,000 and £2,750 respectively, including about £200 in each year in respect of the claim at A (1) above.

12. A (3). The Colony claim that the rate of 4 per cent. under A (1) should be 6 per cent owing to the increased interest rates now obtaining. No mention is made in the present memorandum from the Colony of the date from which it is proposed that this concession should take effect, but in paragraph 7 of the Governor's despatch 28th July, 1928, the beginning of 1915 is suggested. Neither is it proposed in the latest despatch that the 6 per cent should apply to any undertakings but the wireless telegraphy, although "all expenditure in paragraph 7 mentioned above it is considered that it should apply to from revenues since the beginning of 1915." It would, however, naturally follow, if the higher rate is agreed to in the case of wireless telegraphy, it should be employed, from whatever date is adopted for the wireless service, in the case of further capital expenditure from revenue on other productive undertakings financed from revenue, e.g., railways, etc., or waterworks if, this latter undertaking were allowed to be treated like a commercial undertaking on the basis of net receipts (see paragraph 17 below).

No case is made out for choosing 6 per cent in preference to any rate above 4 per cent, nor are any reasons given for selecting 1915 as the starting date, but presumably, if it is to be altered, the rate to be used should bear a relationship to the average rates which the Colony would have to pay if they had raised a public loan at the If the rates for various times when capital expenditure was financed from revenue. loans at the times of the expenditure were 4 per cent to 5 per cent a suitable rate for the rebate would appear to be 4 per cent to 5 per cent. There are two points therefore to be settled here:-

(a) Is the deduction from gross revenue of 4 per cent of capital expenditure on productive undertakings to be increased to a higher percentage; and

(b) Is the deduction at a higher percentage to be made retrospective?

(4) Is a question in which the Treasury is more competent to deal with than the War Office, and they may think it necessary for the Colony to be asked for further information.

As regards (b), the weight of precedent in all matters relating to concessions regarding assessment of revenue is against retrospective calculation.

We have no idea what the effect on the contribution of raising the rate from 4 per cent to 6 per cent would be, but unless it is made retrospective it would not be of large amount

on the undertakings at present dealt with on the basis of net receipts.

"

12. B. Charges for the Use of Government Motor Vans.-Carcases are conveyed by Government meat vans from abattoir to market and a charge per carcase according to journey is levied. The Colony claim that the service is a commercial undertaking and that therefore only the net, instead of the gross, receipts should be assessable for military contribution. The only information we have is that the charges levied appear under Specification of Taxes, Duties, etc.", in the Blue Book. This might be regarded as affording some argument that the service is one which is a function of the Hong Kong Government and not a commercial undertaking in the sense of railways, etc., and there- fore assessable on gross receipts. On the other hand it is doubtful if such a function can be held to be a normal function of Government even in a case where the general and the municipal activities of government are combined as they are at Hong Kong. The amount involved as regards the contribution is only some £200 a year. The authority for the charges quoted in the Blue Book is dated 1919 and therefore the service does not appear to have been included in the Revenue when the percentage was fixed, so that the point for decision here is whether or not the service is commercial or not.

13. C. Gap Rock Lighthouse.—The Chinese Government contribute $750 per annum towards the cost of the Gap Rock Lighthouse. The effect of exemption on the contribu- tion is trivial, but the Colony claim total exemption on principle. They argue that as the Colony undertakes the maintenance of a service outside its territory the cost of which is repair by a foreign administration, the only way in which the Colony can avoid loss is to add to the cost so paid a sufficient sum to cover the military contribution payable. This is considered by the Colony to be indefensible in principle because the foreign administra- tion would thus contribute to the upkeep of His Majesty's Forces. On the other hand we

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might argue that if not properly defended Hong Kong would not long be in a position to carry out the service and the extra 20 per cent. could be regarded simply as a loading for overhead charges.

The authority for this contribution, quoted in the Blue Book, is "C.S.O. No. 148 of 1888."' It was included in the revenue when the percentage for military contribution was fixed and cannot therefore, in principle, be omitted from the revenue without a proportionate increase in the percentage for military contribution. It is one of a number of items which the Colony claimed in 1896, when the percentage basis was introduced, should be excluded from the gross revenue as being appropriation-in-aids. The Colonial Office replied to the Colony that "if any of their proposals were adopted it would be necessary to reconsider the proportion of revenue which has been paid as the amount of the contribution." (Colonial Office letter to Hong Kong of 8th June, 1896.) Referring Turning to those to the items termed "Appropriation-in-aids," the Colonial Office said items of revenue treated as appropriations-in-aid, I would remark that they are in the nature of reimbursements towards expenditure most or all of which expenditure would bave to be incurred if nothing were recovered by way of reimbursement. These receipts are therefore in our opinion properly treated as revenue, and . . . I can see no sufficient reason for deducting them from the total on which the contribution is paid."

14. D. Anti-Piracy Escorts.-The Colony provide anti-piracy escorts for ships pro- ceeding from Singapore to Hong Kong and Shanghai and other China ports, for which In 1930, which was the shipowners pay a flat rate, calculated to cover the actual cost. first year of the service, disbursements and receipts were placed to a suspense account In 1981, the and the receipts were not therefore included in the assessable revenue. receipts and expenditure are included in the estimates, and unless we concede the Colony's claim for the expenditure to be exempt, the gross receipts will be subject to assessment. (The Colony in calculating the military contribution for 1931 have assumed that their claim has been conceded.) Exemption would mean a loss to the contribution of about £1,400 annually.

This amounts to a claim to exemption under Class II or III (see paragraphs 6 and 7 above). The anti-piracy escorts could be regarded as being in the nature of Police Service Loans (except that the escorts are specially provided) for which the borrowers pay the pay and allowances of the officers loaned. The receipts (about $19,000) from these Police Service Loans are included in the revenue.

On the other hand, the escorts are a service specially undertaken by the Colony outside its normal functions, although of advantage in securing the peaceful trade of the Colony in so far as one of the ports of call of the steamers in Hong Kong.

15. E. House Service Account.-The Colony instals water supply and later (a matter of months), as the district develops, recover the cost of installation from the property owners. In the past the expenditure and receipts on account of this service appear to have been excluded from the general revenue and expenditure, but it is now proposed, for accounting reasons, to include them, and the Colony claim that the receipts should be exempt from assessment for military contribution. It is not clear what amount is involved and it would probably vary considerably, but it appears that in five or six months the receipts amounted to about $25,000. The gain to the contribution which would be lost if the receipts are exempted would be £500.

If this service has always been kept out of the general revenue account, which would appear to be the case, there is some ground for considering exemption, and regarding the item as a reimbursement of expenditure and not revenue in the ordinary sense (Class II above), particularly if the service existed when the percentage payable as military contribution was fixed, but we should ask the Colony to confirm this and whether there are any comparable services (e.g., roads). Incidentally, in connexion with the Colony's remarks about correct accounting, it should be observed that changes in the total of revenue due to " improvements in book-keeping" have never been taken as necessarily carrying exemption of the effect of the changes from assessment to contribution.

"

The claim should presumably be for total exemption rather than for assessment on the basis of net receipts as the calculation of the net receipts would be difficult, the service account being a

"one. But it should be remarked that in the memorandum running from the Colony a reference is made to a profit next year, and it is not at all clear how any profit should arise on these transactions. The Colony might be asked to explain this.

years.

16. F. Overpayments.-The Colony claim exemption for overpayments in previous What is meant by this is not at all clear, but it appears to be in cases where the Colony has paid sums out of revenue in one year and in the next, or later, years, found it has paid too much and has accordingly recovered some amount. Apparently it has

A