CO129-582-7 Taxation 6-6-1939 - 5-2-1940 — Page 90

Caine

90

n

HONG KONG LEGISLATIVE COUNCIL.

187

12%. These are the only indications from which I personally can form any judgment as to whether capital is leaving the Colony and they suggest that it is not. No doubt I shall again be told that a great deal is going on which Government does not know about and I can only repeat that it is impossible for the Government to know things if the people who claim to have the information do not take the trouble to communicate it.

It is, I believe, asserted in some quarters that our entrepot trade makes income tax unsuitable. I say asserted because I have never heard any attempt to prove or even explain the statement. I have heard the echoes of a good many discussions about introducing income tax in various countries and it is curious how unanimous the opponents always are that their particular country is so peculiar that what works elsewhere will not work there; but the common plea is rather the opposite of this particular theory. It is usually argued that income tax is not suited to agricultural countries but only to trading com- munities. Government is certainly not lacking in solicitude for the re-export trade, as our reluctance to impose the full system of exchange and import control demonstrates; and it is Government's view that the nature of our trade does make very undesirable many kinds of taxation and many restrictions, but I cannot see how that trade is damaged by a tax which imposes no hindrance whatever to the free inflow and outflow of goods but merely asks the trader to account in due course for the profits of those transactions.

For these reasons I am very strongly of opinion that the economic consequences of imposing an income tax have been enormously exag- gerated. I am more inclined to believe that because exactly the same prognostications of disaster have been made repeatedly in other countries, without ever having been realised so far as can be shown by actual facts. Even with regard to the more fluid kinds of capital for which we have actually suggested special treatment it is extremely instructive to note that the high rates of income tax prevailing in the United Kingdom have never prevented enormous influxes of money to London when the nervous capitalist in Europe has thought that for the moment London would be a safer place to keep his money in that in any other financial centre. I believe that the capitalist is more interested in the security of his capital that in small variations in the net returns upon it and if the security of Hong Kong can be maintained, which after all is the fundamental reason for our selfish interest in the present war, I do not believe that capital will cease to come here.

Before leaving this aspect of the matter, however, I do want to emphasise that the Government is very ready to consider any modifica- tions in the detail of an Income Tax which will minimise such economic dangers as exist. The Committee on the Bill has in fact already agreed upon one important recommendation with that end and I myself have in mind to propose others, e.g., some special concession to newly established factories. It is therefore possible to hope that whatever foundation those apprehensions had in fact will be further reduced when the draft bill emerges from the Committee.

Page 90Page 91