C. 82756/31 [No. 9],
No.
PROOF.
SIR,
WAR OFFICE to COLONIAL OFFICE.
[Answered by No.
.]
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 to 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 Government 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 tele- graphy might be treated on the basis of net receipts as being a new commercial under- taking 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.
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(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 Govern- ment, i.e., that besides being commercial in character it is not an activity which that Government would normally undertake on its municipal side.
(C) Gap Rock Lighthouse. This item has always been in the revenue and it is considered that it should not be excluded now.
(1) 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 paragraph 6 of his despatch of 24th June, 1926,† and in his despatch of 10th September,
* No.
No. 14661/26.
Straits Defence Con.-Gp. 6. 131/2963. 24. 8/34. (18280) M. & S. Ltd.
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