1939-11-09 — Page 21

THE CHINA MAIL, NÓVEMBER 9, 1939

MR. CAINE'S SPEECH

com-

(Continued from Page 14) For those firms 1 can only sug gest that the necessity of piling accounts for income tax purposes should be a blessing In disguise and not a matter to be regretted.

Secondly, I cannot follow him In his belief that humanity 1# divided into Chinèse and the rest. The argument that income tax has never been

success- fully applied to Chinese is appealing, but what are the facts? As to China tself, it is surely obvious that the administration, for reasons I need not elaborate, is too weak to enforce any such tax; but there are other laws which are not enforced in China which we still make a fair show of enforc ing here.

that

It is alleged not merely the existence of Income tax will drive capital away in the future but 'that the prospect of it is already doing so. I do not know where that Information is tained.

obi

•

reason for

ECONOMIC EFFECT

Page

State. ap-

suggested special treatment it is ex-, urged by the Secretary of tremely instructive to note that the Precisely the same high rates of income tax prevailing in | plies to

objection the the United Kingdom-have never pre-sales

suggestion of Kong income tax if it is imposed. and London when the nervous capitalist susceptible of evasion and particularly

vented enormous influxes of money to should

tax, which in addition it is a matter of indifference to Gov-in Europe has thought that for the mo- expensive to collect since it would in

expect to be peculiarly ernment whether that tax is paid by ment London would be a safer place volve the existing owner or by somebody to keep his money in that in any other counts

detailed scrutiny of the ac- else who buys his property from him. financial centre,

of -OTHER KINDS

I believe that the those innumerable small shops whose all businesses including I do not deny that there are other security of his capital that in small within the purview of an Income Tax capitalist is more interested in the profits would be too low to bring them I might here refute the general ap- kinds of capital which can be prehension that the keeping of ac-moved.

re- variations in the net returns upon it department. counts in English and the rendering capital is actual' cash balances which be maintained, which after all is the mend them in the way of simplicity The principal type of such and if the security of Hong Kong can Proposals which have more to com of returns in English will be obli-

may be placed on deposit with banks fundamental gatory; no such intention has ever ex- or other financial institutions isted.

our selfish are for further increases in the duty which undoubtedly

and interest in the present war, I do not on liquor, petrol and tobacco. "MYSTERY” ACCOUNTING

have come

to believe that capital will cease to come gards liquor and petrol the main ob The honourable the senior Chinese ing place.

Hong Kong as a temporary safe rest-here.

As re member has made comments on ques-resident who holds such deposits in matter, however, I do want to

It is obvious that a non- Before leaving this aspect of

jection to any such increase is that tions of administration which formi the Hong Kong might be

the there is a point at which increased main basis of his object in principle transfer them elsewhere if he

tempted to phasise that the Government, is

em-duty leads to diminished consump and which I therefore want to com~

had ready

very tlon, and it is probable that we could to pay income tax on the

to consider any modifications not get a very much larger gross re ment upon in some detail. First, with

interest in the detail of an Income Tax which venue from these duties than we ex- received from them, and the trans- will minimise such economic dangers pect to get as they now stand. The all respect. I do not believe in this

fer of such deposits might do mystery of Chinese accounting; no-

the as exist. Colony harm. For that reason

The Committee on the Bill same applies in principle to tobacco, thing I have heard of it suggests that Bill which is now being examined by important recommendation with the has in fact already agreed upon it is very different from the system the Income Tax Committee provides end and I myself have in mind to the poorer class of the community. one and there is the additional objection adopted by small businesses in Europe that bank interest payable to non- propose others, e.g., some special con- In any case it is quite certain that any that that that duty is in the main paid by as distinct from the complicated ac residents shall be exempt from in- cession to newly established factories. additional revenue countancy of big European firms; and come tax. the adjustment of such accounts for

It is therefore possible to hope that from these duties would be very much that can be got income tax is common routine.

whatever foundation those apprehen- smaller sions had in fact will be further re-

than the amount duced when the draft Bill emerges

from income tax.

expected from the Committee.

THREE CRITICISMS The honourable and learned mem- ber Sir Henry Pollock has suggested This whole question of the econo- inter alle a tax Movements of capital are notori-ination by comparison with the effect mit three criticisms. First, is it equit- mic effect, moreover, requires exam- Hong Kong companies. I would sub-

on

dividends on only go by such indications as ously difficult to detect and I can of the possible alternatives to an in-able to tax the limited liability com- available. In the first place if a lot want to discuss. The Government is capital invested in local companies and are come tax, which is the last matter Ipany and not the partnership, to tax of people were selling Hong Kong very willing to consider such alterna- not capital invested in companies re- dollars one would naturally

expect |‡ives

"Ceridinly did not make the Listered elsewhere? in the limits permitted by our stab-ready considered a great many. I ob-ring their

proposul without having alto prevent such companies transfer- Second, what is As to Singapore, I have itilization arrangements; in fact, how-serve, on very good authority, that the en-

ever, anybody who has dealings in Chine

wever, that neither of forcement of income tax was never

thy and

registration to Shanghai the exchange market will know that Be su

has made any speci- there

paying their really seriously pursued. Lastly Mr. the effective market rate has been for pect

dividends for alternatives.

even if the Chau has not mentioned

profits one place many weeks at just about the high-any

honourable Mr.

gärned in Hong Kong? Third, and where a large community of Chinese

most important, it is one of the valid bers Bur does, I am reliably informed, pay in fix it under those arrangements. That he rendered such valuable assistance on income liable to United Kingdom

est point at which the banks can the Taxa Committee o

objections to income tax as a war tax does not indicate any fight from the and fully realises

that a part of the yield will be paid Hong Kong dollar. Secondly,

the objection the Aft returns which Government is now

offer methods of taxation wh receiving of exchange

that Comini fée transactions,

advise unanimous- details of which it is impossible to that an income tax was publish, do not indicate substantial flight.

'any Such ciple the best method.

Of the suggestions which have been SHARE MARKET

put forward sonde are extremely wil Thirdly, if a nervous shareholder such as the prop to were trying to avoid payment income tax

of Government's ments he might be expected to sell trivial in yield and

on Hong Kong invest the extent of

others would his shares in Hong Kong companies. collect, e.g. duties In the last four weeks the prices of system of Government lotterie et

on cosmetics, the principal Hong Kong shares have Still others will not hard to collect moved hardly at all; but what move-could not yield any very large sums ments have occurred show an aver-Among those would include the sug age increase of about 12%. These gestions of the honourable and learned are the only indications from which the Senior unofficial member for sur I personally can form any judgment charges on electricity, gas and I still believe that that advice was Colony and they suggest that it is as to whether capital is leaving the entirely sound.

Again I would like not. No doubt I shall again be told to remind honourable members that that a great deal is going on which this is a tax on income and not a tax Government does not know about and on invested capital as such or on the I can only repeat that it is impos- conduct of business as such. The im-sible for the Government position of income tax will impose no things if the people who

to know hindrance to the setting up of a busi- have the information do not take the claim to ness here, and if that business is not trouble to communicate it. successful it will pay no tax. If it is successful I do not think that the man who started it will go away be- cause he finds that he has to pay a proportion of his profits to Govern- ment.

come tax and where the authorities have developed what they regard as a satisfactory system of examining Chinese accounts, that is the Nether- Lands East Indies.

MAIN OBJECTIONS The last main group of objections to income tax are of a kind which Gov- ernment ought to weigh very seriously, if they are in fact true: ie., that the imposition of an income tax will drive business and capital away from the Colony.

I may say that before the pro- posal was brought forward in 'this Council at all Government con- sulted certain feading" business men and was assured that an in-

come tax at the comparatively

low rate proposed would not have any such affect.

Again, that is not true of any al- ternative tax. Increased rates, a sales tax, higher charges for electricity and telephones would all be burdens on a new business from its very com- mencement and whether or not it was profitable.

the exchange rate to go down, with prese

It is, I believe, asserted in some quarters that our entrepot trade makes income tax unsuitable.

I say asserted because I have never heard any attempt to prove or even explain the statement. I have heard the echoes of a good many discussions about income tax in various countries and Introducing

it is curious how unanimous the opponents always are that their par- ticular country is so peculiar that what works elsewhere will not work there; but the common plea is rather the opposite of this particular theory. USUAL ARGUMENT

in

H.K. ADVANTAGES Hong Kong has had and still has certain advantages to offer to busi- ness and manufacture, i.e. security, It is usually argued that almost unique harbour. facilities, an

come tax is not suited to agri- administration which we can claim cultural countries but only to to reach a high standard of honesty trading communities. Government is and impartiality, and freedom from certainly not lacking in 'solicitude for irksome restrictions. These advan- the re-export trade, as our reluctance tages will remain and when some of to impose the full system of exchange the wilder talk about the imposition and import control demonstrates; and of an income tax has died down I do it is Governments' view that the na- not believe that the enterprising busi-ture of our trade does make very un- ness man will refrain from coming desirable many kinds of taxation and here to make a profit merely because that profit will not be quite so large as it might have been. It is, however, alleged that the existence or pros- pect of an income tax will drive cap tal away from the Colony and is in fact doing so. There are few things about which more nonsense is talke than about capital being removed from a country The bulk of capital invested in Hong Kong 'is vested in property and in plant equipment of all kinda fde di the cables of the flaph tricity companies, wil

well be remov

All that can ha

is that the own somebody else. however, will:

many Many restrictions, but I cannot see how that trade is damaged by ʼn to which imposes' 'no' hindrance whate to the free inflow and outflow of godd but merely asks the trader to accoun in due course for the profits of those transactions

ENORMOUS EXAGGERATION For

rensoris I am very strong- of opinion: that the economic con- sequences of imposing an Income Tax te Veen enormously "exazkerated:

mre inclined to ben

ter have Vee

ostic

are

come tax and will be recovered by c payers from the United Kingdom Exchequer; nearly all that income con- Sists of dividends prin-

on Hong Kong shares, so that a very high propor-

of our receipts from such a levy, Probably 50%, would be drawn from the pockets of His Majesty's Govern- ment.

on

Finally, the simplest, and to many. people the most attractive, method is to put it on the rates. the primary objection to it is ainly administratively practicable and That is cer- rounds of equity. by many people that the addition to the rates would be borne by the pro

It is suggested perty owner to me unfair that he should be

I confess that it seems

are capable of yielding a ready sub from other sources are to be allowed phone accounts. Of suggestions which ed, while recipients of large incomes tele-pected to pay the whole sum requir-

ех

stantial revenue I start with the in- to escape scot-free, and at the same troduction of a general customs tariff time it seems to be far more likely to The cost of a customs would certainly not fall short of that in the Colony, if it really is the case department prevent further investment of capital of an income tax department, and that the property owner would pay. port of all the big business houses in part of such an increase in rates would I am sure that I should have the sup-In fact, however, I believe that a large saying that the introduction of such be passed on to the occupier, i.c. once a tariff and the multiple restrictions more in the main to the poorest class its collection would entail would do of the community. Moreover any in- more damage to Hong Kong trade, crease in the cost of living accommo- above all to its entrepot trade, than dation will merely help to perpetuate any Income tax.

the dreadful conditions of overcrowd- ing which we all deplore.

A DEFECT

It is a very important additional it necessarily taxes people according defect of a general customs tariff that

what they receive; and it therefore to what they spend, not according to

whereas I think we should all agree bears more heavily on the poor man that any new tax to be should bear more heavily on the weal- imposed

thier members of the community. That point had been very strongly·

GENERAL OBJECTION

The general objection to all these } alternatives is that none of them approaches an income tax in the extent to which it can be adjust- ed to the capacity to pay of the individual, and, therefore in fair. ness of the distribution of

the necessary burden of taxation. In that connection I suggest that

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