CO129-595-3 Proposed introduction of income tax 12-12-1946 - 26-1-1947 — Page 6

D16. Income Tax Ordinance by Mr. J. B. Williams

3. Memo.

Memo. on Minute

4.

9-1-47

6

now attach at No.3 the

draft Income Tax Ordinance, together with an explanatory memorandum, both prepared by Mr. Pudney. The Ordinance has been typed in Mr. Pudney's absence and has not yet been checked by him. It is however urgent to let him know before his return to Hong Kong on Friday that the Colonial Office are in general agreement with these proposals. I therefore send this on without waiting for his detailed checking.

The Ordinance has of course been prepared on lines agreed by the Board of Inalnd Revenue and to suit the main objective laid down for Mr.Pudney by the Hong Kong Taxation Committee. (Vide Nos.1 and 2). Viz. to adapt the War Revenue Ordinance to peacetime purposes. The Ordinance is therefore not an Income Tax one in the technical sense but Mr.Pudney's memorandum fully explains the manner in which his draft Ordinance differs from a normal income tax. The main point to note is that he has so designed the Ordinance that he can assess tax payers on an ordinary income tax basis if they so choose. In this way it will be possible to see whether later on a normal income tax can be introduced without arousing undue opposition from the Chinese who in the past have always vigorously opposed normal income tax since they are unwilling to disclose their own financial position, particularly to other Chinese in the administration.

I think Kr. Pudney's

memorandum is largely self-explanatory. The main disadvantage of the draft Ordinance is that it is not possible to impose a surtax on the higher income tax. This can possibly be offset to some extent by having high standard rates and high individual allowances. It will be seen however that Mr. Pudney is leaving the question of rates for settlement when he gets back.

The general principles of the Ordinance have been agreed by the Board

of Inland Revenue, and Finance Department, through myself and Mr. Sweaney, we have also been in on the discussions. Mr.Williams has seen the explanatory memorandum and I attach his minute at (4). Subject to any views of Eastern Department I now suggest we should tell Mr. Pudney that we are in general agreement with the Ordinance.

•

With regard to the question

of rates of tax raised in preceding minutes

I have suggested to Mr.Pudney that when the principles of the Ordinance have been agreed here we should send a telegram to the Governor

saying that Mr.Pudney has now produced the draft of the Ordinance with which the Board of Inland Revenue and ourselves are in general

agreement,