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securities, I am to say that the Council think it desirable to set out in some detail the relation of these profits to the assessable revenue. They understand that these securities may have been purchased either from the proceeds of land sales or from surplus general balances. While they agree that any prolits arising on the sale of securities purchased from the proceeds of land sales are exempted from assessment, they consider that any such profits, whether arising owing to exchange fluctuations or otherwise, in the case of securities purchased out of surplus general balances are properly assessable for military contribution.
These profits may arise from the sterling appreciation of the securities or from an increase in their value in dollars due to lower exchange. The sterling appreciation of investments of general balances, when realized, is already included in the revenue (see paragraph 291 of Colonial Regulations). There remains for consideration only the dollar appreciation of such securities. It would seem reasonable that such apprecia- tion should be assessable to the military contribution, but the Council will not press this point, subject to confirmation by your Department of their understanding that the amount involved can only be very small, and that its separate calculation would involve special and complicated accounting arrangements. They agree similarly to the exclusion from the assessable revenue of the profits arising from the Crown Agents" routine realizations (see paragraphs 12 and 13 of the Governor's despatch No. 400).
12. In connexion with the profits on the sales of securities a new suggestion is made in your letter, viz., that the income arising from investments purchased with the proceeds of land sales should have been exempt from assessment in the past because the proceeds of the land sales are themselves so exempt, and that exemption should be allowed in the future. I am to state that the Council are unable to accept this view. They are prepared to agree to exemption in cases where such income is definitely used solely for the purpose of increasing the investments, but where the income is included in general revenue they consider that there can be no question but that it has been rightly subjected to assessment.
13. The penultimate paragraph of your letter concludes with an appeal to the Army Council to consider the claims in the spirit of certain remarks made by Lord Haliburton in a memorandum dated 8th June, 1899. On this point I am to observe that that memorandum was directed in the main to the treatment on the basis of net receipts of new industrial undertakings, viz., those established by the Colonies after the fixation of the percentage of the assessable revenue to be paid as military contribu- tion. But the Council trust that, although they have not been able to accept the Colonial Office views on all the claims put forward for exemption or special treatment, it will not be felt that they have failed to consider the whole matter in the accom- modating spirit which Lord Haliburton advised. It has been found possible by making certain concessions to accept the majority of the claims, but to accept the remainder would, in the opinion of the Council, seriously impair the general principles relating to military contributions as laid down by Lord Haliburton's Committees.
14. The military contribution of the Colony falls far short of the cost of its garrison, and the Secretary of State for the Colonies will readily understand the difficulty which the Army Council would feel, particularly at the present moment, in recommending to the Treasury any substantial departure, at the cost of the British taxpayer, from the long established principles relating to the contribution. In this connexion the attention of the Council has been drawn to the recent report (Cmd. 3932 of 1931) of a Commission appointed by the Secretary of State for the Colonies on the Hong Kong currency; referring to the large number of immigrants, the Commission remark (paragraph 38) that "This influx is doubtless due to the security of person and property which British rule affords, as well as to the very moderate taxation imposed on Hong Kong residents, and it is well known that capital is being steadily imported into the Colony by persons of the rentier and capitalist classes."
15. I am to express the hope that, after further consideration in the light of the various comments above, Secretary Sir Philip Cunliffe-Lister will not feel disposed to press further the claims still in dispute. In that event, subject to the concurrence of the Lords Commissioners of His Majesty's Treasury, the Council agree to the com- munication to the Colony forthwith of the accepted claims.
16. A copy of this letter has been sent to the Treasury.
I am, &c.,
H. J. CREEDY.
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