CO129-582-7 Taxation 6-6-1939 - 5-2-1940 — Page 91

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HONG KONG LEGISLATIVE COUNCIL.

This whole question of the economic effect, moreover, requires examination by comparison with the effect of the possible alternatives to an income tax, which is the last matter I want to discuss. The Government is very willing to consider such alternatives and certainly did not make the present proposal without having already considered a great many. I observe, however, that neither of my Chinese friends has made any specific suggestions for alternatives. I suspect that the honourable Mr. Lo, at any rate, remembers our discussions in the Taxation Committee, on which he rendered such valuable assistance, and fully realises the objections to other methods of taxation which led that Committee to advise unanimously that an income tax was in principle the best method.

Of the suggestions which have been put forward some are extremely wild, such as the proposal to repudiate Government's pension liabilities to the extent of 50%; others would be trivial in yield and expensive to collect, e.g. duties on cosmetics, a system of Government lotteries, etc. Still others while not hard to collect could not yield any very large sums. Among those I would include the suggestions of the honourable and learned the Senior unofficial member for sur- charges on electricity, gas and telephone accounts. Of suggestions which are capable of yielding a ready substantial revenue I start with the introduction of a general customs tariff. The cost of a customs department would certainly not fall short of that of an income tax department, and I am sure that I should have the support of all the! big business houses in saying that the introduction of such a tariff and the multiple restrictions its collection would entail would do more damage to Hong Kong trade, above all to its entrepot trade, than any income tax. It is a very important additional defect of a general customs tariff that it necessarily taxes people according to what they spend, not according to what they receive; and it therefore bears more heavily on the poor man whereas I think we should all agree that any new tax to be imposed should bear more heavily on the wealthier members of the community. That point had been very strongly urged by the Secretary of State. Precisely the same objection applies to the suggestion of a sales tax, which in addition I should expect to be peculiarly susceptible of evasion and particularly expensive to collect since it would involve detailed scrutiny of the accounts of all businesses including those innumerable small shops whose profits would be too low to bring them within the purview of an Income Tax department.

Proposals which have more to commend them in the way of simplicity are for further increases in the duty on liquor, petrol and tobacco. As regards liquor and petrol the main objection to any such increase is that there is a point at which increased duty leads to diminished consumption, and it is probable that we could not get a very much larger gross revenue from these duties than we expect to get as they now stand. The same applies in principle to tobacco, and there is the additional objection that that duty is in the main