CO129-586-8 War Taxation 2-2-1940 - 11-5-1940 — Page 144

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As it is, the Bill as framed will, I am afraid, actually enhance the difficulties of administration referred to in Chapter 2, Paragraph 10, of the Report. An impost which is confined to certain classes of income is simpler to avoid because there are other classes of income which are not charged to tax. Thus, a partner could apparently convert a large part of his partnership capital into a loan account, arrange for interest to be paid on it, and reduce the amount of profits liable to business profits tax: as interest received is not being

This charged to tax he would reduce his liability. would not have been possible with a general income tax because, of course, the interest would also have been liable. Another simple way to escape the full effect of the business profits tax would be to split one's business into two parts and thus obtain twice over the benefits of the 10,000 dollar exemption and of the lower rate of tax applicable to profits under 100,000 dollars.

Furthermore, the incidence of the tax is made far

For instance less equitable than a general income tax. a person who derives half his income from salary and half from a business will pay less tax than a person with the same amount of income derived wholly from one or other source: a person with the same amount of income from interest, or from sources outside Hong Kong, will pay no tax at all. In practice the existence of such inequalities, coupled with the absence of any provisions against legal avoidance, is likely to lead to avoidance and administrative difficulty.

I don't understand exactly what is expected of the proposed "Board of Inland Revenue" This body (Clause 3) is to consist of the Financial Secretary and four other members, of whom only one can be an official. The only powers expressly conferred on the Board are :-

(a) the power "to make rules generally for carrying

out the provisions of this Ordinance and for the ascertainment and determination of any class of income", including procedure to be followed in claiming relief and repayment (Clause 58);

(b) the power to prescribe forms (Clause 59);