CO129-595-3 Proposed introduction of income tax 12-12-1946 - 26-1-1947 — Page 17

17

year it should be possible to raise as much as $154 million from a tax on income.

Though the draft Ordinance taken back by Pudney to Hong Kong is not a full Income Tax in the technical sense, it still represents a cormiderable advance over the 1941 law and will, we anticipate, help to smoothe the way for the transition to a normal Income Tax. You will not, I think, be very much interested in the technical aspects, but the shiaf feature of the 1941 Ordinance is that the basis of tax was the source of incom instead of (as in a neraal Income Tax) the individual. There were thus four, so to speak, separate taxes, vis. on property, salaries, profits and interest. The total inoose was net aggregated and rebates and allowances were given on each source, The revised draft, while maintaining the four distinst taxes, departs radically from the 1941 Ordinance in that, exept in the case of the tax on salaries, the basis of which is necessarily individual assessment, no provision iù made for allowances or rebates on the other sources unless the taxpayer is prepared to be assessed an his aggregate income. Otherwise be pays tax om each soures of income at the standard rate of tax.

It is worth explaining that one of the real diffi- culties in Hong Kong, which has in the past mitigated again & Income Tax, has been the unwillingness of the Chinese to disclose all their financial affairs to ether Chinese, whether in the administration or not, The Ordinance as now drafted will give a positive encouragement to the taxpayer to opt for a noewel basis of assessment. If the majority de, then the transition to a normal Income Tax will be relatively painless.

The main disadvantage of the form of tax now proposed