1940-02-17 — Page 15

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February 17, 1940.

13

WHY SUFFER FROM

TAXATION COMMITTEE

Property, Business And Salary Allowances

The War Revenue Committee, appointed by Government to devise means of raising money to help meet the Imperial war costa has completed its report of an alternative scheme to Income Tax.

This scheme calls for taxes on property, on salaries and analogous incomes and on corporation and professional · and business profits In the Colony, 'assessed on bases and at rates calculated to impose very broadly the same degree of sacrifice on the severni classes of persons affected. Such a combination of taxes, says the report, would constitute a partial income tax, - freed from many complications owing to the limitation of its scope and approximation to individual ability to pay.

enquiry as to the ownership of the business and division of the profits and without any deduction for per- sonal and family allowances.

also arise in the case of companies trading in and outside the Colony, but these are not unsurmountable, As regards the possible effects of the proposed measures on the business prosperity of the Colony, we con- sider that, although the imposition or these taxes involves a new departure In fiscal policy the results of which cannot be foreseen, any possible Ill effects will be largely safeguarded against by the conditions with which we qualify our recommendations.

Only For War Poriod

For the reasons stated above we recommend that Government should proceed with measures on the lines of the War Revenue Bill,

We desire, however, to qualify our

Citionion by the following]

The measures of taxation provided for in the Bill should be confined to the period of the war, that is to say, no tax shall be collectable in respect *f any year of assessment, subsequent to the year of assessment in which the war is terminated.

In -order to avold unnecessary expense and inconvenience to In- divid dividuals and firms who keep accounts in the Chinese language, Governm should make it clear that the use of either the English or

Chinese language in the Returns furnishable under the provisions of War Revenue Ordinance will be equally acceptable.

It is proposed that the Corporations Profits Tax be 10 per cent; business profits up to $10,000 per annum he exempt, tax on excess over $10,000 up to $100,000 be 5 per cent, and on excess over $100,000 be 10 per cent; the tax on the first $5,000 of taxable income, after deduction of personal and family

The rates of taxation suggested in allowances, be chargeable at 4 per cent. and thereafter a 10

the draft War Revenue Bill are con- sidered reasonable; but it is essential, per cent. rate to apply; and the property tax to be 5 per cent.

order

allay apprehensions which on the net annual value of all land and buildings in the Colony. might lead to the fight of capital or discouragement of the influx of new The Committee's report states:

capital, that such rates should not The Committee was originally op-

be excessive and that, once the taxes pointed to examine and advise on the

have been imposed, those rates detailed provisions of a draft Income

should not be increased. In this Tax Bill, based on the Ceylon In- Rate proposed-Up to $10,000 per connection it is noteworthy that the come Tax Ordinance of 1932, which annum, Exempt: On excess over Taxation Committee appointed in had been prepared by Government $10,000 up to $100,000, 5 per cent; 1830 after His Excellency the Governor's On excess over $100,000. 10 per cent, respect of Income Tax it would expressed the view that in announcement in the Legislative A Salarles TAX on nearly alil Council оп October 12, 1939,

that salaries and pensions derived from probably be found that the maximum rates should eventually be put at 10 Government proposed to raise new employment in the Colony (other)

per cent." revenue for war purposes by means than salaries liable to United King- of an Income Tax. Later, in view] dom

Income Tax). of the opposition to Government's Rate proposed.The first $5,000 of proposal which was voiced by the the taxable income after deduction of Unoffelal Members at the meetings personal and family allowances to of the Legislative Council on Novem- be chargeable at 4 per cent. there ber 0 and 10, 1039, and because after 10 per cent. rate to apply. was felt that the principle of

of an A Property Tax on the net annual Income Tax for this Colony and the value of all land and buildings in the possibility of raising

additional Colony, at the rate of five per cent, revenue by alternative means were

We have prepared a revised Bi Any staff additional to the present matters which should properly come providing for the imposition, assess-establishment which is required for within the purslew of the Committee, ment and collection of these taxes, the administration of a War Revenue the terms of reference were extend- entitled a War Revenue Bill which Ordinance should be engaged on a ed. The full terms of reference then incorporates our conclusions on many temporary basls so as not to add to became:

matters

of detall which we do not the Colony's pensions commitment. (1) To examine the draft Income propose to attempt to explain in this Concern At Cost Of Government

Tax Bill and advise on the

Report. detailed

Although it may be outside the provisions

Under the suggested Bill profits scope of our terms of reference, we which! would be desirable in such tax will be applied only to profis desire to pince on record our opinion a measure if it were adopted, would have applied to all pro- extra

made in the Colony, whereas income that the question whether substantial having regard to the special tax

revenue for local needs, as circumstances of this Colony; fils, wherever made, or resident per- opposed to temporary war needs, is sons, including companies registered actually necessary-vide qualification here. Other Income from abroad will (a) of the Taxation Committee's (2) to advise whether the best not be taxed at all under the War

method of raising additional Revenue BIL.

report quoted below-cannot be revenue for war purposes)

answered until it has been ascertain would be sucht an income

ed whether the Government of the Tax or, alternatively,

It was repeatedly emphasised by Colony is functioning

the most other measure or measures the official representatives on the economical basis commensurate

surate with of taxation of which the In-Committee that Government was not eflciency. We view with much con- cidence would be on sub- seeking to raise any particular sum cern the continuous rise in the cost stantially the same classes of money, but to impose a reasonable of Government,

A risc Fisc the community as an Income tribution from the Colony. We con- likely to accelerate more rapidly

which the burden of taxation as awar con- Colony's pensions commitment is Tax and which could not be sider that the rates of tax proposed the future than in the passed on to the poorer

We view past. We In the War Revenue Elli do impose with still more concern the fact that such a reasonable burden.

the present heavy expenditure is in- sufficient to enable Government to meet its full responsibilities in the matter of public health, education and social services generally, for which purposes more money

ls (1) the possiblity of evasion ly to be wanted in the near future.

"and" avoidance and con- Before fresls tnxetion

imposed to sequent inequitable In- meet this need, we recommend that cidence,

a Commission (preferably a Royal (i) the resentment of "in- Commission) be set up to Investigate quisitorial" investigation the whole organisation of civil gov into detalls of partner ernment in this Colony with a view ships and personal and to ascertaining whether it Is family affairs,

possible to effect economics which would per- (ii) cost of establishing amit of a substantial increase in the large new Government programme of social services without department (and con- undue increase of taxation. sequential additions in If, after such a Commission, in- salaries and pensions) to creased taxation is required collect the tax and the Income Tax or the methods of taxa- Impossibility

of obtain- tion advocated as a war measure in ing, during the present this Report are proposed, we would emergency, expert assist Invite attention to the qualifications ance for that purpose. attached to the conclusions in respect Effects on the Colony, eg. of Income Tax arrived at by the flight of capital and dis- Taxation Committee appointed *In couragement of the influx of 1938. These qualification, with new capital.

which we express general agree-

and

cinsses.

Claims To Relict

any

Reasonabl Taxation

Difficulties of administration Including:

Opposition to a full income tax Early In our deliberations it be is based mainly on apprehensions as came apparent that to impose an to Income Tax on the profts, wherever (a) made, of companies in this Colony would be unsatisfactory in that many shareholders of-local-companies TC- side

Great 323

Britain

ile Dominions and relet could be claim- ed by such shareholders in respect

or

of Hongkong Income Tax from their

nssessments to United Kingdom or

the

Dominion Income Tax. The revenue which it is proposed to raise is for Purpose of contribution 'by the Colony to the Imperial war

war effort and obviously such a purpose could not be fullled if part of this revenue were, in fact, to be con- tributed by the United Kingdom or Dominion Exchequers In the form of

such relief to shareholders in respect tops in the Colony.

of profts not earned from transac-

Before this examination of the draft Income Tax Bill was com- pleted, however, nur terma of reference were widened, and we therefore turned to the consideration of alternative taxes,

(b)

·

which we

In framing the War Revenue Bill ment, were:

on

In

ice-

and

It has been our aim to remove, as "We must not be taken as express- The conclusion to which we came apprehensions. The combination of extra

far as is possible, grounds for such ing the opinion that such substantial was that the best alternative means taxes now proposed constitutes, it is in so far as more revenue is needed revenue is actually necessary of imposing taxation of approximate true, a partial Income Tax. ly the same degree of severity and Income

A full owing to the growth of the Colony Tax Law which aims Having approximately the same la extracting an amount from each in-matically

ut that very growth is likely auto- sidence as the proposed Income Tax dividual strictly in accordance with while it la outside our province to to Increase the revenue. appeared to be a combination of his capacity to pay is ipso facto a consider how for it may be needed to taxes on property, on salaries and complicated piece of legislation which finance new or improved services." analogous incomes and on corpora- requires a considerable and highly tion and professional and business trained staff for its successful ad- pronts made in the Colony assessed ministration. By omitting some of en bases and at rates calculated to the refinements of a full Income Tax working of the tax should first be Impose very broadly the some degree Law

and by sacrificing a certain the subject of a detolled Investigation

In particular much of the enquiry

Detailed Investigation "The possibility of the successful

of sacrifice on the several classes of amount of revenue, it is nevertheless with the assistance persons affected. Such a combina possible to devise measure of preferably familiar with the collec

of an expert, -tion of faxes would constitute a inxation approximately, but

only tion

of the tax in an partial income tax, freed of many approximately,

Eastern adjusted to complications

in country." owing to its being dividunt

"The imposition of the tax in limited in scope and approximately detail capacity to pay and avold

Inquiries Into personal cir- volves a new departure in fiscal adjusted, to Individual ability to pay. cumstances, particulars of partner-| polley. Wo -assume that it would and so on. The Property Tax' not be passed through Council by the into personal circumstances which which we propose can easily be use of the official majority and that Was apprehended from the ad-collected on tho basis of the assess- unofficial members of Council will ministration of a full Income tax ment made for the purposes of the expect to receive, before agreeing to would be avoided.

Rating Ordinance, 1591.

the Imposition, some indication of Collecting Business Profits Tax the heads of expenditure to which

Similarly, the collection of the

its yield will be applied." Salarics Tox involves no administra- "We feel that it would be unwise A Corporation Prents Tax on profts live dimculties since employers will to impose a tax of this nature until in tife Colony of companies he required to furnish returns of a substantial body of opinion in the registered in Hongkong whether in-remuneration paid to their employees. Colony believes that the tax can be

The following is a summary of the effect of the several taxes referred to

In the preceding paragraph:

mndo

corporated hier

or

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Frode pot, Count the TELEGRAPHS" everywhere

porations which are allowed to die Colony assessment should present no ather forms of taxation." pense with the. word "Limited," eg. great difficulty. The main difficulty, in conclusion we should like to clubs, chambers of commerc

commerce, etc. admittedly, will arise in the collec express our indebtedness to Mr. S. Rate proposed, 10 per cent. tion of Businesa Profits Tax, though

Caine whose Judgment and OX- Business Profits Tax

on grounds of equity ruch a tax must, Perience were of invaluable usaist- A Business Profits Tax on profits be Imposed it there is to be a ance in our deliberations and to Mr, made in the Colony of other business Corporation Profits Tax; but in view R. R. Todd who, as Secretary to the and of professions, the tax being of the purpose for which the four Committee, has kept full minutes of levied on the business and not on taxes will be used there should be no our meetings and who is largely Individual partners, without any attempt at evasion. Dieulles will PLEASE Turn To Pago 2.

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