44
revenue may happily prove to err in the same direction for the current year, so that funds may be avail- able for so many important projects and social services.
a
In the Budget Debate held on November 9, 1939 I renewed, for the third successive year,
plea that Government might be kind enough to make a substantial grant for provid- ing charitable and medical relief to the Chinese on account of the Sino- Japanese conflict. I
am indeed happy that the Select Committee, with the unanimous approval of the Unofficial Members, has agreed to put in, under Head 5 Charitable Ser- vices, a donation of $10,000 to the British Fund for the Relief of Dis- tress in China, Hongkong and South China Branch. I feel sure, Sir, that this gesture will be very much appre- ciated by the Chinese, and my col- leagues and I tender
our sincere thanks to His Excellency.
War Revenue
Sir, in the extremely able and lucid speech of my Honourable Friend the Financial Secretary, in in- troducing the Budget, there were cer- tain observations on the War Re- venue Ordinance with which I must deal. But, before doing so, may I say how much impressed I have been by the way in which he has carried out his onerous duties as Financial Secretary during the difficult and turbulent times through which the Colony has passed since the depar- ture of his distinguished predecessor? I venture to say that the frankness and candour with which he has al- ways treated the Unofficial Members of this Council, and the
courage, ability and devotion to the financial interests of the Colony, which char- acterise all his official actions, have won their united confidence, admira- tion and respect.
Now, to return to the Honourable the Financial Secretary's observa- tions.
The Honourable the Financial Secretary, in his Budget speech on January 16, 1941, quoted
some
remarks he had made when he in- troduced the War Revenue Bill in this Council in March of the pre- ceding year. These remarks I can only describe as damning the Ordin- ance with faint praise. He proceed- ed to say that Government felt "in view of the change in the financial position and the situation disclosed by the actual receipts from the four War Taxes that the principles on which the taxation was based should be reconsidered.”
After
Bitter Controversy Now, what are the facts? one of the bitterest controversies which the Colony has ever known, the Bill was introduced to this Coun- cil on March 14, 1940 with the unanimous general approval of this Council. The statements published from time to time in the Press as having been made by the War Re- venue Department that the levying of the taxes was proceeding smoothly would appear to point to the gratify- ing fact that the hope expressed by the War Revenue Committee, and re-echoed in this Council, that there should be no attempt at evasion in view of the purpose for which the proceeds of the taxes were to be used, has been fulfilled.
Although the yield under this Or- dinance was originally estimated to be six million, the revised estimated yield is nearly ten million (which, incidentally, is the amount of the estimated yield for the full Income Tax Bill), and this in spite of the fact that it is universally accepted that the yield of a tax of this kind tan never be brought to full fruition
during the first few years.
Personally I should have thought that such an unexpected and gratify- ing result of a measure which had received such striking unanimity of support in this Council would have merited an acknowledgment from Government more gracious and fit- ting than the strictures which the Honourable the Financial Secretary felt bound once more to pass on it.
How Bill was Introduced
The Honourable the Financial Secretary observed that far be it from him "to seek to resuscitate a controversy which is dead and buried." I am entirely with him in this attitude. But may I remind Honourable Members of certain facts and circumstances in regard to the introduction of the War Revenue Ordinance?
On December 4, 1939 Mr Caine addressed a letter to each member of the Committee, in which he stated:-
"I enclose some 'suggestions' for a draft report of the Income Tax Com- mittee. I am not circulating them as an official Committee document because they represent what I hope the Committee will be prepared to agree to rather than what has so far been agreed. In view, however, of my approaching departure I thought it might be helpful to put my own ideas on paper."
Let me, then, quote from certain relevant paragraphs of his report:
"3.. We examined a great many suggestions. We rejected, either unanimously or by substantial majorities, by far the greater num- ber of these proposals because they either did not fulfil the conditions laid down by our terms of reference or would yield revenue too small to justify their imposition.
Best Alternative
“4.. The best alternative means of imposing taxation of approximate- ly the same incidence as the proposed Income Tax appeared to be a com- bination of taxes assessed on pro- perty, on salaries and analogous in- comes and on business profits made in the Colony on bases and at rates calculated to impose very broadly the same degree of sacrifice on the several classes of persons affected. Such a combination of taxes would constitute a partial income tax, covering much the greater part of the income which would be liable to a full income tax but freed of many complications owing to its be- ing partial in scope and only appro- ximately adjusted to individual ability to pay. In particular much of the enquiry into personal circum- stances which is apprehended from
1
the administration of income tax should be avoided."
"6. It is, if anything, more diffi- cult to assess the probable annual yield of these taxes than that of an income tax, but the estimate of Mr S. Caine, then Financial Secretary, was as follows:
19
Corporation Profits Tax) Business Salaries Tax Property Tax
) $ 3,000,000
$ 1,000,000
$ 2,000,000
$ 6,000,000
Things to be Remembered
In comparing this with the estim- ate of $10,000,000 from a full income tax it should be remembered that
(a) Income
United subject to is Kingdom Income Tax almost entirely exempted under the new Bill. Several important companies are thus outside its scope alto- gether.
(b) Profits tax will be applied only to profits made in Hongkong, whereas income tax would have applied to all profits of resident persons, including companies re- gistered here, wherever made. (c) Other income from abroad will not be taxed at all under the new Bill.
It was, however, repeatedly em- phasised by the official representa- tives on the Committee that Govern- ment was not seeking to raise any particular sum of money but to impose a reasonable burden of taxa-' tion and we consider that the rates
a of tax proposed do impose such reasonable burden."
"8. We therefore recommend that Government should proceed with measures on the lines of the attached Bill, If the revenue obtained is in- adequate
be consideration should given to the adoption of some or all of the items referred to at the begin- ning of paragraph 4;
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In a note prepared by Mr Caine on "Principal differences between the 'War Revenue Bill' and the 'In- come Tax Bill" he states:-
"1.
Principal Differences General.
An Income Tax seeks to tax every source of each individual's income and to make allowances for his family responsibilities and other in- dividual circumstances. Although much may be collected at the source it is ultimately an individual tax and may entail much enquiry into per- sonal affairs.
pay.
The new Bill proposes to take each of the main classes of income separ- ately and tax them at rates adjusted only approximately to capacity to At some sacrifice of the refine- ments of an income tax it thus avoids many problems which arise in the administration of those refinements and removes some of the features of income tax which are objectionable to the public."
Such, Sir, were the views of Mr Caine. He had made it plain that he was in favour of a straight income tax measure. But he himself was the author of the Ordinance now in force, and he put it forth as a com- promise measure without any trace of reluctance, and certainly without any misgivings as to there being any inequity in its incidence.
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Private notes are available after approval.