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3. The following preliminary observations may be made on the above principal classes, regarded as potential sources of revenue in Hong Kong.

(a) Class 1. Fees and Charges etc. These should, in the main, be governed by the cost of the particular service in question. We make recommenda- tions below regarding certain of these charges which we consider to be unreasonably low.

(b) Class II. Land Sales and Rents. Land sales are governed by commercial demand, and rents are governed by leases. Neither class, with certain minor exceptions, is susceptible of any deliberate increase. We consider, however, that the public's lack of knowledge as to the precise terms on which Government is prepared to renew leases about to fall due, and the increasing shortage of sites, may be the cause of some loss of revenue, and, more important, may be holding up development generally. suggest that it might be remunerative for more money to be voted for the preparation of sites by Government.

We

(e) Class III. Property Tax. The important land tax in Hong Kong is the "assessment" or urban rate, which yields about $6,000,000 or about one sixth of the total Colonial revenue. The present rate is 17%. We have made observations elsewhere on the possibility of increasing this rate and on the question of introducing a progressive element by charging a higher rate on domestic properties of more than some minimum value per occupant. (d) Class IV. Customs Duties. A general tariff has always been regarded as unpracticable in this Colony. Import duties are confined to a very few luxury or semi-luxury articles-liquor, tobacco and petrol. We have considered whether the rates on these articles could be increased and whether the list could be extended to include other luxury goods or articles. of general consumption.

(e) Class V. Excise Duties. These exist in the Colony in the form of duties on locally produced liquor corresponding to the customs duties. The opium monopoly may be classed as a form of excise. We realise that that cannot now be managed as a source of revenue, but we have considered an ex- tension of the duties mentioned above.

(f) Class VI. Internal Revenue. The imposts included in this class mostly constitute taxes on the actual conduct of business. The main sub-divisions are as follows:-

i. Sales or Turnover taxes: These are at present unknown in this Colony. We cannot recommend their introduction. They would be difficult to collect and of very dubious effect on business.

ii. Stamp Duties: These are well-established levies on certain kinds of legal and financial business. We have considered whether they are sufficiently extensive and whether the rates are reasonable.

iii. Entertainment and Betting Duties: Additional revenue could be obtained from these sources only by an increase in the existing rates. We do

not recommend any increase in the Entertainment Duty but we discuss below a possible increase in the Betting Duty.

iv. Licences on commercial activities: (e.g. liquor and tobacco licences, boat licences, etc.) The question of increase turns on the existing extent and rates of these licences. These points we have considered, together with the possibility of a graded system of licensing general commercial activity, having approximately the effect of a business profits tax.

v. Licences on luxury or semi-luxury articles: (e.g. motor, radio, dog licences). We have considered the present incidence and the possibility of extension and increase of these levies.

(g) Class VII. Poll Tax: This does not exist in Hong Kong and is normally found only in primitive, undeveloped communities. The shifting population of this Colony probably makes any ordinary poll tax impossible, but we have discussed a poll tax on entry into the Colony, having regard to the repercussions of such a tax on the immigration problem.