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7. With regard to the argument advanced by petitioners that any tax on shipping will be an infringement of the freedom of the port, I do not think they can be aware of the fact that there are many free ports where the tax on shipping is very heavy, and I agree with those members of the Legislative Council who consider a free port to be one where no customs duties are charged.

8. With respect to the fear expressed by petitioners that ships will be deterred from coming to Hongkong if a charge of 24 cents a ton is imposed the following figures show that the entry of European shipping into Hongkong has steadily increased since light dues were first levied. In 1875 when the dues were first levied the European tonnage entering the port was 1,951,855 tons. In 1880 it had increased to 2,535,587 tons and in 1885 to 3,866,709 tons.

In 1890 light dues were increased from one cent to 2 cents. In that year the tonnage entering the port amounted to 4,893,733 tons and in 1895 it reached 5,772,298 tons.

9. It will be observed that petitioners admit that shipping should pay for the lighthouses which are established and maintained for its benefit. If this principle be extended there appears to be no reason why shipping should not contribute towards other services which are maintained either directly or indirectly on its account such as the Harbour Department, Water Police, etc., the cost of which exceeds the amount raised from the dues of 2 cents a ton imposed on shipping.

10. As I have stated above the charge on native craft yields a revenue of about $50,000 a year, and if the principle is once admitted that European shipping should not be levied for purposes of general revenue, it would seem 'only fair to extend the same principle to native craft.

11. The amount inserted in the Estimates for 1897 as likely to be derived from light dues amounts to $113,000. If the prayer of the petition be granted and a charge of one cent instead of 2 cents a ton is levied the amount of the estimate will be reduced to $45,200.

12. As you are aware the sources of taxation in this Colony are limited and only two years ago the fees charged for various licences were raised considerably. It is true the tax charged on the rateable value of house property is not a heavy one and might be increased without imposing too great a burden on owners of property. But I do not regard the present time a favourable one for increasing taxation in this direction as recent sanitary legislation has involved a considerable outlay on house property, though, should the necessity arise, an increase might be made.

13. After a careful consideration of the arguments advanced by the petitioners and of the views held by others on the subject of the taxing of European shipping entering this port, I am of opinion that a charge of 2 cents a ton imposed on such shipping as harbour dues is not an unfair one, and is not calculated to injuriously affect the prosperity of this port, which even if this charge be imposed, will still be one of the cheapest ports for shipping in the world. If it appeared to me that harbour dues, such as I recommend should be imposed, would have an injurious effect on the welfare of this Colony, I should not hesitate for a moment to advise that no such a tax should be levied. I am fully alive to the importance to this Colony of shipping and to the necessity of care being taken to avoid imposing on it any burden which would deter vessels from visiting it. But in view of the figures given above which show that the tonnage entering the port has steadily increased though it has had to pay for seven years a tax of 24 cents a ton, exactly the same amount which it is now proposed to impose permanently as harbour dues, and of the fact that Hongkong is such a cheap port for shipping, I am led to the conclusion that the fears expressed by the petitioners are groundless and that harbour dues of 2 cents a ton will not keep vessels away from the Colony to the injury of its trade and its prosperity.

14. I am advised that in order to give legal effect to the change which I pro- pose of converting the present light dues into harbour dues it will be necessary to pass an Ordinance. I have therefore to request, if you concur in the conclusion at which I have arrived, that you will authorise me to introduce into the Legislative Council an Ordinance for this purpose, and that you will convey to me your authority by telegram as it is important that this question should be definitely settled with as little delay as possible.

I have, &c.,

WILLIAM ROBINSON.