CO129-582-7 Taxation 6-6-1939 - 5-2-1940 — Page 92

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HONG KONG LEGISLATIVE COUNCIL.

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paid by the poorer class of the community. In any case it is quite certain that any additional revenue that can be got from these duties would be very much smaller than the amount expected from income tax.

The honourable and learned member Sir Henry Pollock has suggested inter alia a tax on dividends of Hong Kong companies. I would submit three criticisms. First, is it equitable to tax the limited liability company and not the partnership, to tax capital invested in local companies and not capital invested in companies registered elsewhere? Second, what is to prevent such companies transferring their registration to Shanghai and paying their dividends there even if the profits are earned in Hong Kong? Third, and most important, it is one of the valid objections to income tax as a war tax that a part of the yield will be paid on income liable to United Kingdom income tax and will be recovered by the payers from the United Kingdom Exchequer; nearly all that income consists of dividends on Hong Kong shares, so that a very high proportion of our receipts from such a levy, probably 50%, would be drawn from the pockets of His Majesty's Government.

Finally, the simplest, and to many people the most attractive, method is to put it on the rates. That is certainly administratively practicable and the primary objection to it is on grounds of equity. It is suggested by many people that the addition to the rates would be borne by the property owner. I confess that it seems to me unfair that he should be expected to pay the whole sum required, while recipients of large incomes from other sources are to be allowed to escape scot-free, and at the same time it seems to be far more likely to prevent further investment of capital in the Colony, if it really is the case that the property owner would pay. In fact, however, I believe that a large part of such an increase in rates would be passed on to the occupier, i.e. once more in the main to the poorest class of the community. Moreover any increase in the cost of living accommodation will merely help to perpetuate the dreadful conditions of overcrowding which we all deplore.

The general objection to all these alternatives is that none of them approaches an income tax in the extent to which it can be adjusted to the capacity to pay of the individual, and, therefore in fairness of the distribution of the necessary burden of taxation. In that connection I suggest that there is something unfair in the criticisms of imperfection which are levelled against the suggested income tax. Because income tax professedly attempts to adjust the burden fairly in a way that no other tax pretends to do it is hotly criticised because it does not reach 100% fairness. I have already suggested that nobody thinks of demanding the abolition of other taxes because they are not free from evasion, and nobody thinks of abolishing the rates because the assessments do not correspond exactly with the periodical fluctuations in the actual rents of properties; but for income tax other standards are applied and it is practically