CO129-539-8 Military contributions- basis of assessment 25-4-1932 - 27-2-1934 — Page 62

COPY.

16/Abroad/276 (F.1.

).

Sir,

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25th February, 1933.

62

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With reference to your letter of the 19th August, 1932, No 92622/32 on the subject of claims for exemption from assessment for military contribution or other special treatment of certain items of the revenue of Hong Kong, I am commanded by the Army Council to acquaint you for the information of Secretary Sir Philip Cunliffe- Lister that they have been in communication with the Treasury on the subject.

I am to state that the Lords Commissioners of His Majesty's Treasury concur in the agreement which has been reached as regards the treatment of the items detailed in paragraphs 2, 3, 4, 5 and 6 of War Office letter No. 16/Abroad/276 (F.1.) of the 25th April, 1932.

In connection, however, with the general question of the rate of allowance, in respect of capital expenditure met from revenue, to be used in calculating the net receipts of recognised productive undertakings, raised on the item dealt with in paragraph 2 of the War Office letter referred to, the Army Council consider and the Treasury concur that in view of the fact that loans generally can now be raised at rates of interest not appreciably higher than those current prior to the outbreak of war in 1914 the increase from 4% to 5% in the allowance in respect of capital expenditure met from revenue would not be justified beyond 1932. The 5% rate should, therefore, only apply to the allowance to be given for capital expenditure met from revenue during the period 1915 to 1932. expenditure arising after 1933 the old rate should be used.

For

With regard to the question of the treatment of water-works revenue Their Lordships concur in the Army Council's view that the proposal to treat the water-works in the new Territories as a new productive undertaking, involving the assessment for military contri- bution of the revenue from those water-works on a net receipts basis would constitute a violation of the underlying principles on which the calculation of the military contribution is based and that the re- fore such a proposal cannot be accepted.

As regards the water-works loan charges, Their Lordships infer that the Secretary of State for the Colonies apparently no longer desires to sustain the view that Section 15 of the Hong Kong Loan Ordinance No.14 of 1927 can be supported by reference to the precedent of the River and Harbour Improvements in the Straits Settlements in 1906; they are in agreement with the Army Council's view that the concession made in Section 15 was erroneous, and con- sider that it should afford no precedent in any future case. They note, however, the representations of the Acting Governor, endorsed by your Department, as to the opposition and bitterness that would be aroused by any attempt to repeal this Section; and they accept the submission, made by the Army Council, that in all the circum- stances it is not now practicable to repeal it.

As regards the proposed new loan of approximately $28,000,000 to be raised gradually for general development purposes, Their Lordships are prepared to agree with the Council that, as special concession and without prejudice to the principles of the military contribution, the amounts raised by extra taxation and appropriated from revenue to meet the interest and sinking fund charges of the new public works loan should in this instance be exempted from assessment for military contribution, provided that the claim to treat water-works revenue, wherever derived, on the

Under Secretary of State,

Colonial Office, S.W.1.

basis