Thursday, HONGKONG TELEGRAPH MORA
May 25, 1939,
Major Taxation: Recommendations In Full
The full text of the recommendations for major taxation by the Committee on Taxation, whose Report was tabled in Legislative Council this
The Committee recommends that several mine 18 given below.
of taxation should be instituted
before any of the major forms, recommended below, are adopted.
***The recommendations regarding major taxation comes under three headings—an increase in the existing Assessment Rate from 17 to 25 per cent., adoption of a Corporation Profit Tax, and Income Tax. The latter is recommended as the most desirable of the three..
MAJOR RECOMMENDATIONS FOR MILLIONS IN REVENUE
THE REPORT makes the following suggestions for
major increases in taxation: What Income
RATES
The "assessment" or urban Tax May Cost
rate, which at present stands at 17 per cent. yields annually about $6,000,000 or about 1/6 of the total Colonial revenue.
The present rate is lower than that obtaining in Shanghai or in Singapore. 2 per cent. is, how- water rc- ever, earmarked as venue and the amount strictly available for general purposes is approximately $5,300,000.
This form of taxation presented self at an early point in our dis- cussions as an obvious sphere in which considerable additional revenue A large part of the might be found. public expenditure incurred by this Colony is properly municipal expen- diture and it would seem appropriate that an increase of this nature should be met by a raised assessment.
Justice Of Incidence
rate A suitable Increase in the would, no doubt, yield extra revenue
If Government adopts the major proposal to institute Income Tax in the Colony this is what it will cost you per annum, less certain deductions for married men with familles, etc.
Income per
5% Income
10% Income
Month
Tax
Тах
$ 350
$ 210
$ 420
400
240
480
500
300
GOD
600
300
720
700
420
940
800
480
BCO
1,000
GOO
1,200
1.200
720
1,440
1.500
900
1,800
2,000
1,200
2,400
accounts by something like an em- bryo Income Tax Department.
Evasion (e. Megal concealment | of profits liable to tax) would proh- ably be small, but extensive efforts at "avoidance" by devices within the law, eg. transfer of registry, mari-
of the order we assume to be con-pulation of accounts with associated templated, ep. an idition of 8 per
companies outside Hongkong, might vent, would produce about $3,000,000. be expected.
the be #
-.
capital. The Colony's pros- perity depends to a large ex- tent on the fact that it is the entrepot 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 Ascal polley would give rise to a demand,
for now dormant, popular representation.
4. The full effect of the tax, for one reason or another, would not reach the Chinese com- munity. The European would Bear the chlef burden and the Chinese escape or evade its incidence. Any differential treatment between races in this small community would be invidious and
rise to
Intense dissatisfaction,
7. The administration of an income
Lax locally would
not be
#.
D.
10.
No doubt such avoidance would It would be appropriate to a large section of local public expenditure be partly met by suitable safe-
there. Jaw. and
body substantial and would present little dificulty in guards in
which would collection by comparison with other would forms of increased laxation. We be of company profits lieve, however, that the final test of be unable to escape tax; but only its acceptability must lie in the constant expert vigilance could pre- Justice of its iredence, a matter to vent the gradual leaking away of which our attention is clearly directed much of that liability. by our terms of reference.
The burden of an increase in the rates would be likely to be divided in the first place between tenant and landlord.
Unjust 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
who
If there were a shortage of houses must of it might be shifted at once objection that it differentiates un to the tenant; if there were a surplus fairly between one group of investors. the landlord might have to suffer te shareholders of Hongkong com-
ers. i.c.
those panles, and others, temporarily.
In the long run most of it would have invested in property, private probably be shifted to the tenant, businesses or companies registered
Colony. the since capital seeking investment in and operating outside
As compared with an ordinary in- property would still expect more or irso the same nel return after deduct-come tax, & profits tax would be un- ing rates.
The tenants or occupiera-consist file also as between individual share- business enterprises, on holders who would pay, not in pro- partly
tax portien to their total incomes but whom the effect would be to disproportionately those, e.. factories proportion to their holdings in Hong- and dock companies, whose business kong companies.
Though such a tax is unjust in the require a large area of land, and
the merit of partly of private occupiers, pre-sense that it is discriminative, we feel dominantly the dwellers in tenement that it has at least
houses.
ot
spreading the burden over a wider On the private occupier the assess-class, namely, all shareholders, rather ment acts as a very approximate in-then settling it upon the more res come tax, which, however, bears tricted class of landowners.
It could, of course, be limited to
but more heavily in proportion to income
at-
on the poor than on the better off, non-resident users Brst sight,]
as
as that may be Instead of bearing progressively more tractive heavily on the higher incomes, as is we cannot convince ourselves of its such limitation would expected
While of a modern taxation equity, system. An increase in the rates at once reduce the yield and open n would, in fact, be what is called a new loophole for ovasion through regressive, rather than a progressive registration of shares in the names of
resident "dummies". inx.
Colony,
Discrimination
It should finally be observed that this tax would leave unaffected, in so In so far as an increase of rates far as they are not shareholders in was not passed on to the tenant, it public companier, the salaried and would constitute a tax on a particu-professional classes, the landlords and of private business- Tar class of Investor, the landlord, the large body
as men, whose operations, although in- and would be discriminating between him and others deriving dividually smaller in scale than those income-from-capital invested in the of big public companies, give rise to
large aggregate-of-profis We have also been impressed by Finally we considered the institu- the view that any increased taxation tion of an Income Tax.
This is a standard tax' in most having the effect of fording up rentals
comparatively averlaxing Western countries, in the British and/or "property capital" may be expected Dominions and in India; and the only to encourage the slums, the eradico-important territories in the Colonial tion of which is one of the purposes Empire in which it does not exist in form are the Gold Coast, for which, we assume, Government expects to have to find further funds. Malaya and Hongkong.
We Any tax must force the taxpayer to
are agreed that this direct form most logical, adjust his mode of living to a reduced of taxation is the
some
net income, but a tax bearing directly equitable and remunerative, and at ncess-the same time the least discrimina- on housing accommodation sarlly forces such adjustment into a tory, if it is capable of successful ad-
ministration. socially undesirable channel.
to argue the It is unnecessary
Having regard to these considera-
tions of ineqully and social evils theoretical case for such a tax 03 likely to arise from the incidence of rounds of equity and we have there- an increase in the rates, we recom fore devoted our consideration of this mend that, in spite of ense economy of collection and the size subject rather to its practicability.
and
of the yield to be expected, this means to additional revenue should
Doubts Of Succoss
The grave doubts which are widely
be regarded rather as a last resource felt as to the possibility of its success- CORPORATION PROFITS ful administration in this Colony may
TAX
A tax on the profits, or dividends, of public companies operating Inj Hongkong Is a second, suggestion | which, in common with an increase | in the assessment, coull be made lo produce additional revenue of sub- stantial amount. It is estimated that, the profits Unble to such a the might
something like $50,000,000 annum, yielding annually, at 3-per geht $2,600,000
per
"It would present, however, some difficulties of assessment and collec- flon and it is open to objection on the score of equity, The effective ad. ministration of such a lax would require expert scrutiny of companies'
be summarised na follows:
1. The economic and geographic situation of the Colony, which
#
is more of a municipality than
country,
many presents obvious loopholes for evasion. 3. The primitive system of book- keeping used by Chinese firma would render fair assessments. difficult it not impossible.
3 The migratory nature of the Colony's population, and the extremely mixed taxable com munity with greatly differing standards of living muke Hong- kong unsulted to the tax stenerally,
4. Many benefits pro all to be derived from preserving the Colony as a haven for refugee
12.
Fix
possible nt an economic cost. A Inrge and expert European staff would have to be imported. An experimental Income Tax was introduced in the Straits Settlements during the war and was later abandoned,
Economie and industrial deve- lopment-particularly of small factories as yet their infancy
would
be seriously affected, Much of the real burden of an Income Tax would, in effect, he borne by the United Kingdom Treasury, in the way of allow auces and remissions.
Payment of Income Tax might dry up the flow of subscriptions to public charities, e.g. Chinese hospitals.
Finally, it is undesirable to pass a law capable of only partial enforcement.
In Favour
On the other side, the following arguments can be brought against. these misgivings.
1. In every country loopholes for evasion exist, and will always! oxist. But there are also certain considerable classes of income! which cannot easily escape, Suff incont
from
In properly
the profits of companies re-
sterca in the Colony, salaries and passam and other large
of the
employees
ΟΙ ent-
ployers. The real problem 15,- could evasion be kept within rea- sonable...bounds? The samo fears! were expressed on the introduction of the tax in the United Kingdom and in other countries and it la well-known that incessant vigilance is necessary to prevent evasion in tax is, how- those countries, ever, regarded as successful at
is
actunl home and there
no evidence that there is any greater tendency to evasion in Eastern countries than in the United King-- dom itself,
"The
wo
have In this connection studied the original report, written in 1030, by Mr. H. J. Huxham, now Financial Secretary of Ceylon, on the possibility of Income Tax In Ceylon, and we have profited by a letter from him on the present working of the tax in that Colony, where evnsion has not so far presented an insoluble problem, However, the position of Hongkong may not be strictly analogous with that of Ceylon, and we consider that it is impossible to give a final answer to this objection without much fuller investigation.
2. This is in the main true, but Is not by any means a finat-objec tion.
The education of the com- munity in the modern systems of accountancy would run concurrent- ly with the early stages of the tax,
has
the happened in exactly as
Kingdom under the pressure United
salisty the authorities of the need of the accuracy of the taxpayer's own estimates of his income By the time the tax was well establish- ed, thin objection would probably have lost much of its force.
3.
Migratory Population
The migratory section of the population is, in general, precisely that section which would be Standards exempt from the tax.
of living may, indeed, have to be reduced in some cases, but this in not a relevant objection to itself is this particular form of tax, how- ever relevant it may be to the Issue. of whother to impose additional taxation at all. A tax would be corn. objectionable when its effect was to reduce the standard of living to an uneconomie und undesirable level. No result of this nature is contemplated In Hongkong, if the) usunt scheme of allowances and exemptions is adopted.
4. The rates to be imposed in Hongkong should not-we-consider, be sufficiently high to drive away "refuged" capital and companies. It might even pay to treat the income of non-residents trome.g. bank, depuis particularly gener ously in any event, diminished
Constitution
Of Committee
The members of the Taxation Committee, which was appointed by His Excellency the Governor on December 9 last year, are:
Hon. Mr. S. Calne, Financial Secretary to the Colony;
Chief Sir V. M. Grayburn, Manager, Hongkong & Shanghal Banking Corporation;
Mr. D. J. Bloss, Vice-Chancellor of the University of Hongkong;
Hon. Mr. J. J. Paterson, Managing Director, Messrs. Jar- dine, Matheson & Co., Ltd.
Hon. Mr. M. K. Lo, Sollellor. Mr. J. Fleming, Scalor Partner, Messes. Lowe. Bingham & Mai- thews.
Mr. C. B. Burgess, Colonial Servico (Becre» Administrative
tary).
The Hon. Messrs. 9. Caine, J. J. Paterson and M. K. Lo are mem- bern of the Legislative Council.
tax
in
other countries. For example, direct taxation was never adduced, even in the most turbulent times, as grounds for agitation for popular representation in India, The collection of any given amount of extra revenue may well lead to demand for popular control of finance, whether it is raised by Income Tax or by other means,
Ceylon's Experienco
G. This argument is a particular aspect of point 1 and might have soine force during the early ad- ministration of the tax. Careful preliminary investigation and ade- quate safeguards would be neces- sary. If the Initial stages can be successfully passed there is no rea- son to believe, that the increased agility of the evasive taxpayer will not be more than counter-balanced by the added experience of the Income tax officers.
7. If an Income Tax is consid- ered advisable on other grounds, the cost of administration should to affect the not be so heavy question. In Ceylon, the cost has been about 4 per cent. of the yield. Thla cost would certainly require consideration in any preliminary investigation but it would naturally diminish after the initial years.
8. The experience in the Straits Settlements was too short, the powers given to the Revenue au- thorities too limited, and the cir cuinstances during its operation too exceptional to enable any useful conclusion to be drawn from it..
Discouragement
9. The possible discouragement ot factories is a sound economic obiection, but factories could be compensated in other ways, eg. either by an adjustment of rates as under the English Industrial Derating System, or by a general reduction in' the assessment. Fac- tories might well prefer an Income Tax, which would affect their pro- Ats only, to an increase in assessed rates which would be payable even when a profts could be shewn.
Livery Resta Cour
CLEARANCE
Breds
Summar
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COME EARLY !
For this week only!
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Formerly $1.95 & $1.50
Reduced to $1.00 por yd.
Flair Fashion Fabrics & Printed Linen Reduced from $2.50 & $1.95
NOW $1.50 yd.
WHITEAWAY, LAIDLAW & CO., LTD.
ALL OVER.
SPEY
ROYAL
WHISKY
THE WORLD
DISTILLED OVER 10 YEARS AGO BY
SOLE AGENTS:
GILBEY S
THE CENTRAL TRADING COMPANY
Smoke
BANK OF CANTON BUILDING.
C.
10. The point has not been felt as an objection in other Colimies or Dominions, the general view being that the Government of the country where an income arises has the first right to tax It This Colony has, In the past, assisted the Imperial Government to a re- latively greater extent than have othes Colonies, particularly with regard to the Defence Contribu
lon, and this objection should not carry much weight if the tax be ather addsable on considered grounds. If it is the general wish that the Colony should assist the Home Government more generous- ly, that can be done better, and
Your kidneys' havo, nine million Uny) under greater public control, by the veling of additional funds for the tubes or fullers which are endangered bri
neglect or drastic, irritating drugs. De ware! If Kidney trouble or Bladder wanke purpose ill the annual Budget
neas makes you suffer from Getting Up 11. It cannot be denied
Nights, Leg Paine, Nervousness, Dizx}< private charity may be less gener-ns Stiffness, Rheumatism, Lumbago, ous if the wealthy have already Circles Under Eyes, Swollen Ankjes, Neuralgia, Burning, Itching. Smarting. ar Loss of Vizout, don't delay pald an Income Tax, but it is
Acidity Tuy the Doctor's new discovery, called regretfully noted that the stream
charity 1a niréady Cratex (Blan-tex), Boothes, tones, cleans,
and and heals sick kidneys, Starts work in 1 O private showing a marked falling off; and minutes, Brings new health, youth and the necessity of supplementing it vitality in 4 hours, Cystox costry little
A PERLA
of.
that
Help Kidneys
Don't Tako Drastic Druge
troubles in
by increasing Government subven and guaranteed to and
4 days or money back at all chemists tions to private charitable institu tions is one of the reasons why Government may have to rate fur- ther revenue,
tho
acceptable.
12. The whole question turns on of administering the posibilty tax so successfully as to make it The introduction-of an Income Tax has never originat ed in a theoretical effort to perfect the system of taxatlon," but "In a stern need for revenue. If there fore- additional revenue of consider- uble proportions is required, and it it is considered that on Incoro
returns might well be acepted ifrax will produce that additione
attended by undiminished security, 6. This is quite a possible result
although it is not one which has
|~~~~CANLIITTI" on the feposition of the
revenue, the possibility of bxien-| 1
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