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The Bill contains four taxes. A1 Propert ax of 5% per annum on the rateaie value of land or build- ings as assessed for rating purposes. And here I should explain that as the Rating Ordinance, 1901, pre- scribes a tax to be borne by the occupier it has been considered. necessary to indicate clearly that the Property Tax is intended as a tax to be charged on and borne by the owner, which I think is in accord with the views of the War Revenue Committee. The purpose of this amendment is to prevent the passing on of the tax, as it makes clear that the certificates of fair rent issued under Section 6 of the Prevention of, Eviction Consolidation and Amend- ment Ordinance, 1939, cannot take into consideration a tax definitely described as to be borne by thei owner.
I am authorised to state that if any attempt is made generally to pass on the Property Tax to tenants ( Government is prepared to introduce such legislation as may be considered necessary to prevent this.
Salaries Tax
The second tax is a Salaries Taxi on nearly all salaries and pensions derived from employment in the Colony. The first $5,000 of the taxable income after deduction of personal and family allowances will be chargeable at 4% and thereafter a 10% rate will apply. No abate- ment in respect of life insurance premiums was recommended by the] Committee.
The third and fourth taxes are, respectively a Corporation Pro-1 fits Tax on profits made in the Colony of companies registered! in Hongkong at a rate of 10% with- out any abatement, and a Business Profits Tax on profits made in the Colony from all businesses and pro- fessions which is levied on thej business and not on individual per- sons so that no inquiry as to the ownership of the business and the division of the profits is involved. Į There is, in the circumstances, deduction in respect of personal and family allowances and the rate pro- posed is, after a general exemption up to $10,000 per annum, 5% on the excess over $10,000 up to $100,000 and 10% on the excess over $100,000.
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I think I am correct in saying that the Committee regarded these taxes not so much as four several taxes; but as four forms of one tax and'
that the acceptability of that one tax depended on grounds of equity on the acceptability of each of its component parts.
To Produce $6,000,000 The Committee offered no estim-· ate of the revenue expected to be raised by their Bill and in the nature of things such an estimate must be largely guess work, but Mr. Caine, who was largely responsible for framing the original draft of the Bill, suggested that Salaries Tax might produce $1,000,000 and Cor- poration and Business Profits Taxes together $3,000,000, while the re- ceipts from the
The Government has accepted the recommendations of the War Revenue Committee and the Bill which I am. asking to have read to-day for the. first time is a Government measure. It is, however, just and proper that I should state at this juncture that in the Government's view the taxa- tion scheme framed in the Bill will not be as equitable or as efficient a means of raising revenue as would be an income-tax measure on the lines which you, Sir, and your advisers had in contemplation a few months ago.
Free Gift From Public Funds It may seem anomalous that an Administration, with a competent majority on the Legislature, should deliberately promote one measure believing another to be its superior, but the explanation is not far to seek. This Bill's principal purpose
is to finance a not inconsiderable free gift from public funds to His. Majesty's Government, and in such a case it would be improper to force upon the would-be donors by the use of that majority a taxation method to which the Unofficial Members of this Council had object- ed strongly and unanimously.
I trust that we will see fulfilled. the hope expressed by the Com- mittee that, in view of the purpose for which the proceeds of these four taxes are to be used, there will be no attempt at evasion; and I wish to assure the public that officers of the War Taxation Department will re- gard it as their duty to help and: advise them in assessing their in- dividual shares of the voluntary contribution which the Colony making to His Majesty's Govern-- ment towards the prosecution of the war with Germany. (Applause).
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After the Bill had been read a first time, the Financial Secretary moved that Standing Orders be suspended to enable it to be read a second time, so that it could be re- ferred to the Standing Law Com- mittee without further delay. This: was agreed to.
HON. MR. M. K. LO'S SPEECH
Hon. Mr. M. K. Lo: To me it is a matter for gratification that this Council should now have before it a measure which has already received. the unanimous general approval of this Council, and which will enable the Colony to make to England a fitting war contribution to be raised from the wealthier members of the community. In this congenial at- mosphere of accord I refrain from answering, and criticising, certain observations which fell from some of the Official speakers in this Council on the opposition advanced in this Council against the Income Tax proposals. But I feel it is due to this Council that I should set out my reasons for opposing the original, and accepting the present, proposals.
The Income Tax Committee, of which I had the honour of being a member, held its first meeting on November 3, 1939, and at this meet- ing a draft Income Tax Bill, which
had Property Tax are calculable in the neighbourhood of $2,000,000. How it is proposed to devote this revenue to the prosecu- tion of the war will be explained in part when the first resolution stand- ing in my name is moved, and full details are given in the application for the necessary supplementary votes which will be submitted to Finance Committee this afternoon.
been previously sent to the members, was placed before the Committee for its consideration. This Bill consisted of 87 clauses. many of which were so necessarily complicated as to be beyond the com- prehension of the general. public, and which occupied some 49 pages of print. A close study of the Bill forcibly confirmed the view I had entertained that an Income Tax measure was quite unsuitable to local conditions, and that it would have unfortunate repercussions on the Colony.
To be continued.
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At this meeting I asked a ruling whether, under the terms of our reference, the Com- mittee was entitled to express an opinion as to whether such a measure was, or was not, desirable, and whether alternatives to the measure could be considered. The answer was in the negative. I thereupon pressed for a communique to be issued to the Press, setting out the strictly limited terms of our re- ference. This communique was issued to the Press on November 7, 1939.
It was in these circumstances that I spoke in this Chamber on Novem- ber 9. I spoke not in ignorance, but with full knowledge, of Govern- ment's proposals. Apart from one point in my speech, to which I propose later to refer, I do not wish to withdraw anything I then said. My views have remained unaltered. Terms of Reference Widened Your Excellency intimated in this Council on November 16 that you were prepared to widen the terms of reference of the Income Tax Committee, and the widened terms were officially communicated to the Committee at its meeting held on the following day.
Speaking for myself, I have always appreciated the point which Mr. Caine so eloquently made in his speech in this Council on November 9, namely, that no suggested alterna- tives could be acceptable which did not call for any appreciable sacrifice 4 on his part, and that this remark was true of others in the higher income groups.
The task of the Income Tax Com- mittee under its widened terms of reference was, then, as I conceived it, to endeavour to solve the difficult problem of placing upon the right shoulders the burden and privilege of the War Taxation, by means which would obviate or mitigate the grave objections raised to the Income Tax measure.
The Bill now before the Council is, Sir, the result of the Committee's efforts.
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I do not pretend to say that the present Bill has surmounted all the administrative objections advanced, but I do say that, in my view, they have been very substantially duced, and reduced in a way which would have been impossible under an ordinary Income Tax Bill. Nor do I pretend to say that all the possibilities of ill effects on the Colony have been removed. I can only hope that the rates of charge proposed by the Bill are low enough to reduce any such ill effects to the minimum. In this regard I have one further observation to make. I know there are various places in
which an Income Tax is successfully administered. The refutation, by result, of the forebodings of the tax before its introduction in such places has
as been repeatedly used argument in favour of its introduc- tion in Hongkong. The validity of this argument depends entirely upon the similarity of Hongkong with the other places. I maintain that Hong- kong is not similar.
Low Rates Urged
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I would therefore urge that the importance of keeping the rates under this Bill low, SO as not to discourage the inflow of capital to, or its maintenance in, Hongkong, should be borne in mind.
It can be said, and it will no doubt be said, that this Bill is but an Income Tax Bill in a modified form. In a sense this is of course true. Indeed, in a sense, every tax, even an indirect tax, is a tax on income. But I venture to think that this Bill differs fundamentally from an In- come Tax as it is generally under- stood,
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