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from 4 per cent. to 6 per cent. Attention was also drawn to the question whether military contribution should be raised on the appreciation of securities when sold. On this last item a further separate letter was forwarded by the Colonial Office in February, 1930 (Colonial Office letter of 19th February, 1930).
9.
Particulars of the items now put forward by the Colony for modification were enclosed with Colonial Office letter of 27th February, 1931; they are:-
A. Wireless Telegraphy.
(1) 4 per cent. rebate on capital expenditure to be allowed. (2) Assessment of net instead of gross receipts.
(3) Increase of rebate under (1) from 4 to 6 per cent.
B. Charges for the use of Government motor vans. Assessment of net instead
of gross receipts.
C. Contribution from Chinese Government for maintenance of Gap Rock Light-
house. Total exemption.
D. Contribution for anti-piracy escorts. Exemption of actual disbursements E. House Service Account. Exemption of all but net receipts from the installa-
tion of water in private houses.
F. Overpayments in previous years.
G. Waterworks undertakings built out of revenue. Rebate 4 per cent. on capital
expenditure met from revenue.
In their despatch of July, 1930, inviting these claims, the Colonial Office drew particular attention to the principles underlying agreement to modifications of revenue to be assessed and presumably it may be taken that the items referred to in paragraph S and not referred to in the latest despatch are withdrawn either because they cannot be modified without an alteration of the percentage basis of the contribution (Post Office, Municipal revenue, &c.) or because there is no revenue yet (Aerodrome, Ferries).
The War Office provisional remarks on the items mentioned in paragraph 8 (based on the information then available) are contained in the enclosure to War Office letter of 25th April, 1929, to the Treasury. They have been embodied, so far as they are appropriate in the light of the more detailed information now available, in the detailed remarks below.
10. A. Wireless Telegraphy.-(1) From 1915 to 1929 some $464,000 has been spent by the Colony on capital outlay on wireless telegraphy out of revenue and further expenditure of about $59,000 was anticipated in 1930. The Colony claim that the usual rebate of 4 per cent. on this capital expenditure should be allowed for 50 years (see paragraph 5 above). This claim is necessarily linked up with A (2) below, as we have never admitted any such rebate except in connexion with the concession which is permitted in certain cases whereby only the net receipts and not the gross receipts of productive undertakings are assessed for contribution purposes (see paragraph 4 above). The precedents are the same as those for A (2) below, and the financial effect is con- sidered there.
11. A (2) Up to the present the gross receipts from wireless telegraphy have been included in assessable revenue. The Colony claim that the expenses (personal emoluments, stores, rent of offices, interest on capital expenditure, &c.) should be deducted before assessment to contribution is made.
The principles involved in the assessment of net receipts" only of productive undertakings are given in paragraph 4 above.
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."
C
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 in paragraph 7 mentioned above it is considered that it should apply to all expenditure from revenues since the beginning of 1915.' It would, however, naturally follow, if the higher rate is agreed to in the case of wireless tele- graphy, 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 under-
7
takings financed from revenue, e.g., railways, &c., or waterworks if this latter under- taking 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 had to pay if they had raised a public loan at the various times when capital expenditure was financed from revenue. If the rates for 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 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, &c.," 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, &c., and therefore 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 contribution 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 contri- bution payable. This is considered by the Colony to be indefensible in principle because the foreign administration would thus contribute to the upkeep of His Majesty's Forces. On the other hand we 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.
C.S.O. No. 148
The authority for this contribution, quoted in the Blue Book, is of 1888."
It was included in the revenue when the percentage for military contri- bution 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 to the items termed "Appropriation-in-aids," the Colonial Office said Turning to those items of revenue
treated as appropriations-
in-aid, I would remark that they are in the nature of reimbursements towards expen- diture most or all of which expenditure would have 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."
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