TNAG-0606-FCO40-754-Monitoring-progress-made-on-planning-papers-on-Hong-Kong-1977 — Page 233

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but did levy excise duties, at quite high rates, on luxury goods con- sumed locally. Ile had searched widely for other possible sources of indirect taxation but all were hedged with difficulty.

Hence, generally, the importance of rates as one form of indirect taxation. Lord Goronwy-Roberts asked who paid the rates. Mr Haddon-Cave said that there was a dual liability, on both occupiers and landlords. the occupier did not pay, the landlord was liable. Lord Goronwy-Roberts suggested that a man so poor that he paid nothing in direct taxation might yet receive no exemption from rates. He asked what proportion rates constituted of the total tax yield. Mr Haddon-Cave said it was 9-10% of recurring revenue. In theory rates were collected from all occupiers but the burden of these occupiers of older estates was removed.

6. Lord Goronwy-Roberts asked about 'offshore earnings'. Was the Review Committee looking at these? Mr Haddon-Cave said that the terri- torial source criterion was causing difficulties. A business based in Hong Kong could artificially locate its profits outside Hong Kong and avoid tax. Recent case law has been unhelpful. He aimed to change the law so that the ambit of charge was redefined. Lord Goronwy-Roberts asked if the Review Committee was considering taxing funds removed from the Colony.

Mr Haddon-Cave said it would be disastrous if outflow were taxed. Exchange control in any shape or form could not be considered helpful for Hong Kong. Lord Goronwy-Roberts said he was grateful for Mr Haddon-Cave's explanations. Lord Goronwy-Roberts said that he hoped

Mr Haddon-Cave was clear on his expectations. These were:

(a) that there should be a maximum programme of social progress as was already the case;

(b) that the programme should be funded in the most socially equitable way. Progressivity was not necessarily the only tool for doing this;

(c) that the public expression of firm criteria for fiscal policy was counter-productive. There was to be no public setting down of certain principles or constraints; and

(a) that he should be provided with (i) a general indica- tion, as soon as possible but before the end of this calendar year, of Hong Kong's thinking on the next budget and (ii) a more detailed exposition of Hong Kong's budget- ary proposals as far in advance of the publication of the budget as possible, say three weeks. Had this two-stage process been in use before the last budget it might have been possible to avoid the situation that had arisen.

Sir M MacLehose said that he agreed as to the principle but not as to the procedure. He expressed "horror" at any thought of negotiating the budget. He would certainly let Lord Goronwy-Roberts have his up to date thoughts on the budget shortly before its publication but it would not be possible between now and the end of the calendar year to add to what he and Mr Haddon-fave had already said. Lord Goronwy-Roberts said that he wished to have, not less than three weeks before Budget Day, as many details as possible of Hong Kong's intentions so that he and the S of S could form their own thoughts thereon and convey them to the Governor. Mr Haddon-Cave asked if Lord Goronwy Roberts wished to see the draft of his speech. Lord Goronwy Roberts said that, ideally, we

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