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Hongkong's Future
I say Great Britain; but I have no doubt that honourable members realise that Hongkong's future is as deeply concerned with the outcome of that struggle as is the United King- dom itself.
I suggested that that contribution might have two objectives, firstly to cover our expenditure fence and other expenditure caused on local de- by the war, and secondly to provide, according to our means, a free gift to His Majesty's Government in aid of the prosecution of the war against Germany. I also suggested that that gift might consist either of cash or kind or both.
In setting that idea before Council I had in mind, as I have the firmly still, the thought that it is the duty of this Colony to help to bear the Empire's burden to the utmost of its power, even though that utmost would be, monetarily speaking, as insignificant as was the Widow's Mite; and, secondly, I considered, as I per- sonally still consider, that an income tax was the best means of collecting that contribution.
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Masterly Reply
As the honourable the Financial Secretary has said, when that pro- posal was made public we were not without good reason for believing that an Income Tax levied for the purposes which I have mentioned would be accepted generally by the people of the Colony as appropriate at this juncture.
I could not, if I would, add any- thing of value to the masterly reply which the honourable Mr. Caine has made to the principal objections which have been raised to the introduction of Income Tax: he has shown inat some of the apprehensions which the announcement of Government's pro- posals has roused have been unduly magnified and that others have no foundation in fact.
I feel quite sure that most, if not all, of the opposing arguments adduced here have found voice in every country where Income Tax has been mooted.
So far as administrative difficulties are concerned, I have
it on the authority of the Secretary of State that we should not be deterred by fears on that ground, for experience has shown in many
Colonies that these can be successfully overcome; and it may be of interest to Mem- bers to know that, apart from the Dominions, Income Tax is already part of the financial structure of fifteen British Colonies, while several others contemplate its introduction.
Amount of Contribition
But although I do not propose to add to or to reiterate the points made by the Honourable the Financial
Secretary, there are one or two aspects of the matter on which I have a word to
say. Firstly as to the amount that the Colony
should contribute, for I note that every mem- ber here supports in one degree or another the making of such a con- tribution. In this connection I wish to dispose of an apparently wides- pread delusion that Government has determined to raise war budget revenue of $10,000,000 per annum, or of any other pre-determined sum.
No such statement has ever been made by a Government officer; pre- sumably the error took its rise from too hasty a reading of a few para- graphs of the honourable the Finan- cial Secretary's speech in this Coun- cil on October 12, which appear on page 143 of this year's records.
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As he made clear in mentioning that figure, it was no more than a guess-work estimate by the Taxation Committee of what might be the outcome of a two-shilling income tax, and that guess included, of course, the large amount which would have been transferred from the Home Government Income Tax revenue to the Hongkong Treasury.
Two Shillings Tax Two shillings was regarded by Government as a reasonable standard rate for an Income Tax here, should one be imposed, and so it came about that the ten million figure was men- tioned. I recognize the motive which has prompted the honourable and learned member, Sir Henry Pollock, to
propose the very handsome sum of three million dollars as a maximum for the Colony's contribution; but, in the absence of any real information about the Colony's aggregate income and until the means of raising the con- tribution have been settled, I think it wiser at this stage to leave the question of amount at the honourable Mr. Lo's definition, which he express-- ed as follows:
"As we
are all agreed that the Colony should make the best contri- bution of which it is capable, the problem confronting this Council re- solves itself to one of finding the best means of raising the money."
False Impression
While on this subject I would observe that there has been an as- sumption in several quarters that Government's intention has been that Hongkong's contribution to His Majesty's Government would neces- sarily take the form of a monetary gift sent from here to London. Such is not the case and I take such blame as the false impression de- I serves for not being more specific in my first utterance on the subject. Rather, what I had in mind-and similar suggestions have appeared in. the local Press-was the construc- tion at our expense and in our yards of vessels for the Royal Navy, such as mine-sweepers, one or two of which would make a very valuable addition to our defences here and others, no doubt, could usefully be employed elsewhere: alternatively, our contribution might be towards the Royal Air Force.
Method of Obtaining Funds
Secondly, as to the method of obtaining funds for our purpose. I frankly confess to surprise that so many Members of this Council and responsible bodies outside the Council should have been ready to express themselves so definitely on this very complex question of Income Tax not only in the face of the findings of an expert committee but even without waiting to see the Government's actual proposals in detail or healing any exposition of1
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the case.
However, that exposition has now been given, and given by one who is master of his subject; and there is, moreover, no vote to be cast on the issue at the present time, so no boats have been burned as yet.
I have said that would not go over the ground trodden by the honourable the Financial Secretary and I do not wish to elaborate the case for income tax to-day; but I wish to make two or three points in connection with the proposals out- lined by myself on October 12. The first I have made already. What
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Government has in contemplation is a free gift to His Majesty's Govern- ment while engaged in a life and death struggle: it would be utterly illogical, to say the least of it, to describe as free a gift wrung from an unwilling community by the use of the official majority in this Council; no such thought has ever entered my mind.
Committee's Conclusion Doubt has been thrown this after- noon upon the actual conclusion to which the Taxation Committee came in respect of Income Tax. After de- tailing the arguments against and for such a measure they reported as follows:
Our conclusion is that the advan- tages of an efficiently administered Income Tax over other forms are overwhelming from the point of
view of equity, and that, if it be considered that the tax is capable of successtul administration in the Colony, it should be imposed as soon as additional revenue on a substantial scale becomes a necessity. in view, however, of the undoubted force of many arguments opposing the intro- duction of the tax locally, we must qualify our recommendation in five
ways.
(a) We must not be taken as ex- pressing the opinion that such sub- stantial extra revenue is actually necessary; in so far as more revenue is needed owing to the growth of the Colony that very growth is likely automatically to increase the re- while it is outside our pro- venue, vince to consider how far it may be needed to finance new or improved services.
(b) The possibility of the success- ful working of the tax should first be the subject of a detailed investigation with the assistance of an expert, pre- ferably familiar with the collection of the tax in an Eastern country.
(c) The imposition of the tax in- volves a new departure in fiscal policy. We assume that it would not be passed through Council by the use of the official majority and that Unofficial Members of Council will expect to receive, before agreeing to the imposition, some indication of the heads of expenditure to which its yield will be applied.
(d) We feel that it would be unwise to impose a tax of this nature until a substantial body of opinion in the Colony believes that the tax can be levied fairly and efficiently.
(e) The imposition of Income Tax should to some extent be compensated for by the remission of other forms of taxation.
Automatic Repeal
war
The second and third points deal with certain objections which have been against the imposition
of an Income Tax. Of these one is that, once established on the plea of the necessity of war, the tax would re- main in peace time. To that I would rejoin that if eventually it is agreed that an Income Tax Bill for purposes should be introduced I should have no objection to the in- clusion of a clause which would effect an
automatic repeal of the measure at some stated time, for example, at the end of the financial year next after the conclusion of peace. The other objection is of smaller calibre, though I believe that it is very potent: it is the fear that Income Tax procedure is necessarily inquisitorial to a high degree and that the business secrets of mer-1 chants and manufacturers would thus become the prey of either their competitors or of blackmailers. But that it not so: the honest taxpayer
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