Sessional_Paper_1940 — Page 12

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proposals which have been put forward recently in the Press which was kindly prepared by Mr. Lawrence Kadoorie. We rejected, either unanimously or by substantial majorities, by far the greater number of these proposals because they either did not fulfil the conditions laid down by our terms of reference or would yield revenue too small to justify their imposition.

5. The conclusion to which we came was that the best alternative means of im- posing taxation of approximately the same degree of severity and having approxi- mately the same incidence as the proposed Income Tax appeared to be a combination of taxes on property, on salaries and analogous incomes and on corporation and professional and business profits made in the Colony assessed on bases and at rates calculated to impose very broadly the same degree of sacrifice on the several classes of persons affected. Such a combination of taxes would constitute a partial income tax, freed of many complications owing to its being limited in scope and only approximately adjusted to individual ability to pay. In particular much of the inquiry into personal circumstances which was apprehended from the administration of a full income tax would be avoided.

6. The following is a summary of the effect of the several taxes referred to in the preceding paragraph:-

(i) A Corporation Profits Tax on profits made in the Colony of companies registered in Hong Kong whether incorporated here or elsewhere. Exemption for corporations the whole of whose profits are liable to United Kingdom Income Tax and for corporations which are allowed to dispense with the word Limited", e.g., clubs, chambers of commerce, etc.

Rate proposed

10%

(ii) A Business Profits Tax on profits made in the Colony of other businesses- and of professions, the tax being levied on the business and not on individual partners, without any inquiry as to the ownership of the business and division of the profits and without any deduction for personal and family allowances.

Rate proposed:-

Up to $10,000 per annum

On excess over $10,000 up to $100,000

Exempt 5% 10%

On excess over $100,000

(iii) A Salaries Tax on nearly all salaries and pensions derived from employment in the Colony (other than salaries liable to United Kingdom Income Tax).

Rate proposed:-

The first $5,000 of the taxable income after deduction of personal and family allowances to be chargeable at 4%, thereafter a 10% rate to apply.

(iv) A Property Tax on the net annual value of all land and buildings in the Colony, at the rate of five per cent.

7. We have prepared a revised Bill providing for the imposition, assessment and collection of these taxes, entitled a War Revenue Bill, which is attached to this Report as an Appendix. That Bill incorporates our conclusions on many matters of detail which we do not propose to attempt to explain in this Report.

8. Under the suggested Bill profits tax will be applied only to profits made in the Colony, whereas income tax would have applied to all profits, wherever made, of resident persons, including companies registered here. Other income from abroad will not be taxed at all under the War Revenue Bill.

9. It was repeatedly emphasized by the official representatives on the Com- mittee that Government was not seeking to raise any particular sum of money, but to impose a reasonable burden of taxation as a war contribution from the Colony. We consider that the rates of tax proposed in the War Revenue Bill do impose such a reasonable burden.