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(Enclosure 2.)

ATTORNEY GENERAL'S CHAMBERS,

HONGKONG, 12th June, 1917.

Report on Ordinance No. 18 of 1917.

I have examined the accompanying Ordinance intituled an Ordinance to provide for a temporary increase in the rates for the special purpose of increasing the contributions of the Colony to His Majesty's Government towards the expenses of the present war, and I am of opinion that the Ordinance is one which is not contrary to the Governor's

Instructions.

The object of this Ordinance is to impose a special war rate of 7%, in addition to the ordinary rates, for the purpose of providing an additional contribution to be paid by the Colony to His Majesty's Government towards the expenses of the war.

Section 3 provides that this special war rate shall cease to be payable at the end of the quarter during which the present war shall have come to an end.

The special war rate, like the previously existing rates, is made an occupier's tax. To have made it a landlord's tax would have thrown a heavy burden on a limited class, and the question of intermediate landlords would have been difficult. A considerable amount of house property is let out in blocks by the owners to intermediate landlords. These intermediate landlords again sub-let the houses in floors, and the tenants of the floors sub-let portions of these floors to others. If it had been desired to make the tax an owner's tax, it would probably have been difficult to prevent the owners from shifting the taxation to the ultimate tenants, at all events in the central districts.

It is also provided, in section 4, that the special war rate is to be borne by the occupier, irrespective of any agreement which may have been in existence at the com- mencement of the Ordinance under which the owner made himself liable for rates generally. This was done because the raising of the taxes by such a substantial amount cannot have been in the contemplation of either of the parties to any such agreement.

It was desired at one time to exempt the poorer classes from the incidence of this rate, but this was found to be impossible. One argument in favour of this tax is that its incidence is to a certain extent graded by the persons themselves who pay it, as they select their quarters more or less in accordance with their income.

Section 7 provides that the revenue collected by means of this special war rate shall be placed at the disposal of His Majesty's Government, and section 8 accordingly provides that the revenue so collected shall not be liable to military contribution.

Section 9 is an attempt to prevent landlords from taking advantage of this special war rate to increase rents unduly. There was evidence that some landlords were already preparing to collect from their tenants a considerably higher percentage of additional rent than was justified.

Section 10 is directed to the case of persons in the service of the naval and military authorities who already pay income tax in the United Kingdom. Persons in this class have suffered severely through the war, chiefly on account of the abnormal rise in exchange, their pay being fixed in sterling, and there seemed to be a general feeling in the Colony that they should be relieved from this special war rate.

The outlying villages and agricultural districts are excluded from the schedule.

In my opinion this is an Ordinance to which His Excellency the Governor may properly assent in the name of His Majesty and on His behalf.

J. H. KEMP,

12th June, 1917.

Attorney General.