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be unable to escape tax; but only constant expert vigilance could prevent the gradual leaking away of much of that liability.

As regards incidence, such a tax must, at once or eventually, fall upon the shareholders. From the point of view of equity it is open, like a tax on landlords, to the objection that it differentiates unfairly between one group of investors, i.e. shareholders of Hong Kong companies, and others, i.e. those who have invested in property, private businesses or companies registered and operating outside the Colony. As compared with an ordinary income tax, a profits tax would be unfair also as between individual shareholders who would pay, not in proportion to their total incomes but in proportion to their hold- ings in Hong Kong companies.

Though such a tax is unjust in the sense that it is discriminative, we feel that it has at least the merit of spreading the burden over а wider class, namely, all shareholders, rather than settling it upon the more restricted class of landowners. It could, of course, be limited to non-resident share- holders, but attractive as that may be at first sight, we cannot convince ourselves of its equity, while such limitation would at once reduce the yield and open a new loophole for evasion through registration of shares in the names of resident "dummies".

It should finally be observed that this tax would leave unaffected, in so far as they are not shareholders in public companies, the salaried and professional classes, the landlords and the large body of private businessmen, whose opera- tions, although individually smaller in scale than those of big public companies, give rise to a large aggregate of profits.

Income Tax.

(c) Finally we considered the institution of an Income Tax. This is a standard tax in most Western countries, in the British Dominions and in India; and the only important territories in the Colonial Empire in which it does not exist in some form are the Gold Coast, Malaya and Hong Kong.

We are agreed that this direct form of taxation is the most logical, equitable and remunerative, and at the same time the least discriminatory, if it is capable of successful administration. It is unnecessary to argue the theoretical case for such a tax on grounds of equity and we have therefore devoted our considera- tion of this subject rather to its practicability. The grave doubts which are widely felt as to the possibility of its successful administration in this Colony may be summarised as follows:—

1. The economic and geographic situation of the Colony, which is more of a municipality than a country, presents many obvious loopholes for evasion.

2. The primitive system of book-keeping used by Chinese firms would render fair assessments difficult if not impossible.

3. The migratory nature of the Colony's population, and the ex- tremely mixed taxable community with greatly differing standards of living, make Hong Kong unsuited to the tax generally.

4. Many benefits are still to be derived from preserving the Colony as a haven for "refugee" capital. The Colony's prosperity depends to a large extent on the fact that it is the entrepôt of China, a free port, without income tax and without excessive taxation. An unwise fiscal imposition may well upset this precarious prosperity.

5. So radical a departure in fiscal policy would give rise to a demand, now dormant, for popular representation.

6. The full effect of the tax, for one reason or another, would not reach the Chinese community. The European would bear the chief burden. and the Chinese escape or evade its incidence. Any differential treatment between races in this small community would be invidious and give rise to intense dissatisfaction.

7. The administration of an income tax locally would not be possible at an economic cost. A large and expert European staff would have to be imported.