but
Li Tsi to.
57
Board of Education's Position This leads me to a consideration of the Board of Education. It was established in 1920 "for the purpose of assisting the Director of Education in matters pertaining to the develop- ment and improvement of education: in the Colony," and has since then. remained as a purely advisory body. It is an important body, and I feel that it is time that the constitution of the Board should be reviewed and. its function extended. A desirable feature of any new change would be the institution of several select com- mittees, on similar lines
as the Urban Council for the purpose of dealing with various educational activities such as registration of private schools, awarding of Govern-- nent scholarships and recommenda- tions of grants to aided schools.
In the matter of expenditure under Air Raid Precaution I wish to draw the attention of Government to the total lack of provision for shelters ior civilians who may be out in the open in time of emergency. I realise the peculiar formations of this Colony that make it almost impossible to provide shelter for everyone, but I venture to think that it may be possible at a small cost to build a number of small underground shelters or in the alternative to strengthen some of the public buildings in the City to provide for such eventuality.
an
I will now come to the considera- tion of the proposed imposition of Income Tax. I have had the op- portunity of studying the speech made
by the Honourable the Financial Secretary on the 9th November, but I can see no reason to change my opinion. I shall therefore confine to what I intended to say on that day and refer to his speech again at the end.
How Chinese Feel
Before I offer my personal obser- vations on this very important matter wish to say that the Chinese Com-
views munity, whose
my Chinese colleagues and I have the honour to represent, are not unconscious of the duty of all citizens in this Colony in connection with the present war in Europe. They realise that the Colony should do its utmost to make contri- butions to the war chest to the full extent of its resources as a token of the Colony's loyalty to the Imperial! Government. The Chinese Com- munity are most grateful for the pro- tection and security afforded to them in this Colony and I feel that they will not hesitate to give their support to the Government in any financial measures other than Income Tax in connection with the war. The opposi- tion to the proposed imposition of In- come Tax as far as the Chinese are concerned, is not based on any poli- tical grounds but is entirely for economic reasons.
I share the view which has been expressed both inside this Chamber and outside that in view of the pecu- liar economic structure of the Colony as an entrepot which is apt to be ad- versely affected by the war in Europe, the imposition of this form of taxation at the present juncture may inflict such damage to the vital interests of the Colony that it may not be able for a long time to regain its im- portance.
In modern countries where indus- trial organisation is well advanced and the population is well educated and the standard of living is more or less uniform, Income Tax, from the
point of view of equity and faculty, is perhaps one of the best forms of taxation. But it is noteworthy to observe in the Taxation Com- mittee Report of 5th April 1939 that even in these modern countries "incessant vigilance is necessary to prevent evasion." In Hongkong with its peculiar economic conditions and its peculiar composition of popula- tion, the task on the part of the Administration to carry into effect| such "incessant vigilance" may prove to be formidable and costly.
Effects of War
wares
The impact of the war in Europe is beginning to tell on a large section of the Colony's manufacturing indus- tries such as cotton goods, shirts and and shoes, singlets, rubber cosmetics and electric torches and batteries, mainly due to increasing cost of imported raw materials and transport. Any further encumbrance which a new impost such as Income Tax may impose upon those indus- tries may compel them to move out of the Colony. What I ask is that the Government should not make it more difficult for these industries to carry on if it can possibly help it.
In the matter of Exchange Control the Government has recognised this Colony's peculiar position and was quite right in applying special treat- ment to solve that problem. It is therefore logical that on the question of taxation, we are entitled to similar special considerations bearing in mind that any form of taxation which would tend to drive capital and industries away from this Colony should be avoided as far as possible.
At the present stage when full de- tails of the proposed Income Tax are not yet available to the Public, I would only add that Income Tax, being in reality not a simple Tax but a complex system of taxation, is not a desirable form of taxation for this Colony.
There have been many proposals put before the Government as alter- native methods for raising the neces- sary revenue for the war budget. I realise that some of these proposals would place the main burden of the additional taxation on some particul- ar sections of the community but as war measures a certain degree of inequality is unavoidable.
Should Use Surplus
the
I hope that the Honourable Financial Secretary will agree with me that the financial position of the Colony is not at all precarious but is, in fact, quite sound. The Colony's surplus at the end of 1939 would probably be more than what is bud- getted for in the revised estimate when we take into account the fact that duties on petrol and liquors have been doubled and the increased as- sessment came into effect on the 2nd half of the year. In my hum- ble opinion if Government fail to raise the necessary amount of re- venue for the requirements of the war budget by means of taxation other than Income Tax, the Govern- ment could fall back on the Colony's surplus which, at $13,562,235.00 as on 1st January 1939, represents over 33% of the total ordinary revenue for the whole year.
The above, Sir, was all I proposed to say, had not the budget debate been postponed, on the 9th Novem- ber. As, by the rules of debate, laid down by Your Excellency many of the previous unofficial members, in-
1
cluding my two Chinese colleagues, from answering the are debarred speech of the Honourable the Finan- cial Secretaray made on that day I must add a few remarks in reply to that speech.
Brilliant Debating Effort
No one who has listened to or read the Financial Secretary's speech of the 9th November could possibly fail to appreciate its brilliance as a debating effort. But if I may say. so, his speech upon a close analysis is not convincing because it fails to deal adequately with the fundamen- tal objection to the tax, namely, its effect on the Colony; and because it is devoted largely to an argument as to the absence or presence of ad-¡ ministrative difficulties.
The Honourable the
Financial Secretary appears to have overlooked two very important observations of the Taxation Committee which, briefly summarised, are as follows:
(1) That the possibility of the suc- cessful working of the tax should first be the subject of a detailed investigation with the assistance of an expert pre- ferably familiar with the col- lection of the tax in an eastern country.
a
(2) That it would be unwise to impose a tax of this nature until substantial body of opinion in this Colony believes that the tax can be levied fairly and efficiently.
The Hon. Mr. Caine stresses the point that because the exchange rate of the Hongkong dollar has been stable for the last few weeks at about the highest limit permitted under the stabilization scheme, there has been no substantial outward move- ment of capital. It is well known that the exchange rate of the Hong- kong dollar is subject to fluctuation caused by many factors which I need not enumerate, and I do not think that it can be taken as any evidence indicating the movement of capital. In this connection I need only point out that the exchange rate of our dollar in terms of the Chinese dollar | has depreciated quite substantially since the 12th October.
Colony Loses Money
I have no actual figures available but I have reason to believe that since Income Tax was mooted, the amount of Chinese currency notes that have been shipped out of the Colony has been on the average of about a million dollars a day which constitutes a heavy inroad on the floating capital of the Colony. In addition there is that invisible flight of capital through transactions in sterling operated between here and other financial centres.
The Honourable the Financial Se- cretary was somewhat caustic in his criticism of
advanced arguments against the imposition of Income Tax, because of the difficulties of adminis- tration, and he saw fit to set his knowledge against that of the Hon- ourable Senior Chinese unofficial member as to how Chinese accounts are kept. I am sure that my Senior Chinese Colleague did not intend to weave a net of mystery about Chin- ese accounting as if he were trying to defend it in that way. It is funda- mentally different in a manner that it is not easy to describe. Those, who have occasionally to construe it, as for instance in the courts of law or in bankruptcy, know how difficult it is to reconcile it with modern ac- counting methods.
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