CO129-587-7 Telephone Amendment Ordinance 1940 9-4-1940 - 16-4-1940 — Page 35

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HONG KONG LEGISLATIVE COUNCIL.

The provision of this exchange represents a capital saving to Government of roughly one-quarter of a million dollars. Also a discount of 25 per cent. will be allowed Government on the standard rate of subscription in respect of any telephones or connections in excess of these 500 lines. Arrangements will be made later for the Company to take over other Government services when it is possible to obtain the necessary equipment, and until this matter has been further discussed from the technical angle it is difficult to estimate the ultimate saving to Government in respect of recurrent expenditure and personal emoluments, but an appreciable saving is anticipated in respect of both.

Also an additional royalty of one half of the surplus profits over and above the amount required to pay a 12 per cent. dividend on the paid-up capital shall be payable to Government. In order to avoid double taxation the Company is permitted to deduct any amount payable to Government by way of taxation on profits from the net annual profits of the Company before surplus profits are assessed for this purpose. This is based on the analogy of the treatment of such other utility companies as pay a royalty to Government which will be permitted to deduct the royalty from their profits before such are assessed for purposes of war taxation. It will be observed that the remaining half of the surplus profits remains at the disposal of the directors who need not necessarily employ it for the purpose of increasing dividends.

This arrangement will apply retrospectively to the year 1939, so that Government may anticipate a considerable addition to the royalty otherwise payable in respect of that year. It is felt that Government, as representative of the whole community, has a prior claim to a share of the surplus profits in preference to the subscribers who already enjoy a remarkably cheap rate of subscription.

The management of reserves has been varied by allowing depreciation of existing investments to be charged to the capital reserve at once and in respect of capital reserve in lieu of the appropriation of a sum not exceeding $170,482 per annum there will be paid an appropriation not exceeding $92,577 per annum, plus the total amount of interest and dividends received during the year from the investments made on account of this reserve. This sum is calculated as sufficient to accumulate the required amount in thirty-six years on a sinking fund basis of 3 per cent. Interest on investments made on behalf of the depreciation reserve will continue to be credited to profit and loss account. Depreciation of such investments will be debited against profits but any excess over their written down value on realisation will be credited.

The Bill is being introduced as a Government measure but its terms have been agreed to by the directors of the Company. In perusing the Hansard account of the first reading in this Council of the Telephone Ordinance, 1925, one meets frequent tributes to the ability and tact of Mr. Taggart who conducted the final negotiations

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