56
4
4. The second ground advanced by the Colony in favour of the new proposal is their desire to find a basis of assessment which would avoid the controversies attendant on definitions of the revenue assessable to contribution. It is true that there have been such controversies, particularly before the war (is some cases these were due to flaws in the Colony's method of accounting), but the War Office is not aware of any recently affecting Hong Kong, apart from the present correspondence in which the Colony has indicated various changes that it would like to see made if the present system is to continue. These are dealt with below in paragraphs 10ff.
5. The Colony's third objection to the present system (mentioned but not -stressed by the Governor) is that under it every item of new taxation for a new service has to bear a surcharge of 25 per cent. to meet the military contribution pay- able on the increase of revenue. But this is not illogical under the present system, nor is it unreasonable if an increase of revenue may be assumed to indicate an increase of the Colony's capacity to pay military contribution. The view propounded in War Office letter to the Colonial Office, dated 24th May, 1910, with reference to the Straits Settlements, was that new classes of revenue should be assessed for contribution and that this was consistent with the fundamental basis of calculation of this contribution as a fixed percentage of the total gross revenue. For this purpose, it is clearly immaterial whether an increase of revenue is produced by the development of existing or the creation of new classes of receipts." But this only answers the charge that assessment of new sources of revenue' is illogical; it may of course be logical and still be burdensome.
6. The rating of Hong Kong, which the Colony now proposes to make the basis of the military contribution, is governed by the Rating Ordinance, No. 6 of 1901. The valuation is conducted by an assessor appointed by the Governor and reporting to the Colonial Secretary. There is a right of appeal to the Court. Certain tenements* are not rateable, namely:-
(a) Those below a minimum rateable value to be fixed by the Governor in
Council.
(b) Certain tenements not occupied for profit, e.g., hospitals, museums, schools,
churches.
(c) Any village or area exempted by the Legislative Council from assessment
for rates.
The rates vary from 13 per cent. in certain areas to 7 per cent. in others.
7.
8.
It may be noted that--
(i) The valuation does not cover the whole of the Colony but **
the most
important districts." Controversy is thus possible over the area of assessment.t
(ii) The average value of the rates at present is more than 12 per cent. but less than 13 per cent. of the total rateable value. The War Office is offered 124 per cent. Hence the Colony's financial interest in the rate will become extremely small unless the percentages all round are increased. The safeguard advanced by the Governor against any attempt to reduce its contribution by reducing the rateable value is the fact that the assessment is carried out in a manner prescribed by law, and any alterations in the law would, in accordance with normal practice, be submitted by the Colonial Government to the Colonial Office and by the latter to the War Office, who would thien have an opportunity of protesting. The Governor specifically emphasizes that the intention of the proposal is not to reduce the contribution.
An appendix is attached, based on figures supplied by Hong Kong, showing the difference between the actual vield from the present svetem and the amount that would have been yielded by 124 per cent. of rateable value for the years 1901-1998. The differences in column 5 of the appendix tell heavily against the new proposal; the
* "Tenement means any land, with or without buildings
+ The Colonial Office has asked Hong Kong to send an exact definition, with map, of the area covered by the valuations, see semi-official letter to Mr. Crosland of 8th January, 1929.
The following comparison may assist to indicate the extent of the interest which the Colony would have in the rates after the military contribution had been paid-:--
Actual revenue from the rates
12 per cent. of rateable value, proposed as military contribution Difference (being the Colony's residual interest in the rates
1925.
1926,
$
$ 3,298,000 3,637,000 2,769,000 3,411,000
529,000
226,000
5
bulk of the difference, however, occurs in the abnormal period of the war and for several years subsequent to the war, when a rent-restriction ordinance was in operation. For the years 1901 to 1913 there would have been a small net balance in favour of the new proposal. The Colony appears to regard the war years as outside comparison, and the Governor argues that during the years 1923-28 the rent-restriction ordinance adversely affected the rateable value by as much as 10 per cent. But an increase of 10 per cent. in the levy on rateable value during 1923-25 would not by any means have wiped out the large differences, shown in column 5 of the Appendix, between the actual contribution and the amount of the 12 per cent. levy. The financial effects are again referred to in paragraph 26.
9. As regards the question whether the rateable value or the revenue of Hong Kong is the better criterion of the relative prosperity of the Colony, it will be observed from columns 2 and 4 of the appendix that for the years 1901-1913 the rates of increase of gross revenue and rateable value fairly corresponded. Thereafter the rate- able value increased at a much slower rate than the gross revenue. This is doubtless accounted for by war and post-war conditions, and the disparity may be held to be abnormal. The fact remains that for the period 1914-1928 rateable value and gross revenue would have yielded very different amounts of military contribution. But apart from this, the Governor's point, referred to in paragraph 7, that the assessor is bound by law to assess in a particular way hardly offers a sufficient safeguard. The same legal obligation is imposed in this country, but that does not prevent one authority from assessing low and levying high" and another from " assessing high and levying low." If the assessor at Hong Kong decided at any time to assess low, the War Office levy would remain fixed at 123 per cent.
The Reserved Claims.
10. If the scheme outlined in paragraphs 2-9 is not accepted, the Colony has expressed its intention of proposing some revision within the existing system. Under this system, the assessment of the contribution is made upon the gross revenue of the Colony, but with certain qualifications.
The qualifications are:-
11.
(a) Exclusion of certain sources of revenue altogether from gross revenue-
(i) Condemned stores.
(ii) Adjustments of exchange.
(in) 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.
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 assess- ment 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 productive 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.
(d) 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
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