TNAG-0518-FCO40-613-Constitutional-development-in-Hong-Kong-1975 — Page 64

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low company taxation.

This is held in Hong Kong to be a better incentive for investors that the system of higher taxation and tax holidays for new investors which is the route followed by many of Hong Kong's Asian competitors.

1.

One result is that the taxation system has been remarkably unprogressive by modern standards and this lends colour to the NEC's charge that the Government of Hong Kong unduly favours the rich. There has hitherto been no aggregation of an individual's total resources for taxation purposes and an overall restriction of 15% on the total tax payable. There has also been no taxation on dividends. Taken together, these measures ensure that taxation is, indeed, regressive at the highest income levels.

5.

In his Budget speech this year, the Financial Secretary recognised that reforms are due. Profits tax has been raised this year and a dividends tax is promised in the next Budget. A Commission is to be set up next year to review the principles of the Inland Revenue Ordinance. These are steps in the right direction but it will be some time yet before Hong Kong can claim to have a taxation system remotely comparable with that of a modern industrialised state. There is a considerable weight of local opinion in favour of low taxation us an incentive to investors but it is gradually being recognised that higher taxation is a corollary of the Government's plans for social

progress.

6.

The Government's record in social affairs has been mixed. The housing programme has been remarkable and there are few, if any, countries that can claim to have housed some 44% of its population in subsidised public housing. Standards were very low to begin with but are improving; and the Government has plans similarly to house a further 1.5 million of the population. This is remarkable given the vast influx of population referred to above. The record in other social sectors has been less impressive until recently. However, since the arrival in the Colony of Sir Murray MacLehose a new impetus has been given to social reform and social spending now accounts for some 42% of all Government expenditure. Even over the past difficult year, social expenditure has increased by some 12% and although plans

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