FCO_49_622_PLANNING_PAPER_ON_HONG_KONG_1976 — Page 104

of 1973 and its organisation and relations with the public have been radically improved. There has also been notable progress in the Hong Kong Government's fight against corruption and crime. Finally, in an overcrowded territory the Government has successfully launched many arbitrary plans to improve communications, amenities and recreation facilities for the general public. Fuller details of these plans are given in Annex D. What follows is an attempt

to isolate such aspects of these plans about which we have doubts and to consider whether the fiscal and legislative arrangements of the Colony are adequate.

Fiscal

4. The most obvious distinction between Hong Kong and other industrial societies at a comparable level of development is the comparatively low and narrowly based level of direct taxation. (It is of interest that only 180,000 out of the total population pay salaries tax husbands and wives counting as one person and no taxes are levied on income arising from investments abroad.) To some degree it must be accepted that the present system has been conducive to growth; that growth has resulted in a rapid rise in taxation receipts (from $M1808 in 1970/71 to an estimated $M3612 in 1975/76); that political uncertainties require a measure of discount for foreign and domestic investment; and that in the 1950s and 1960s there were non-fiscal constraints on the growth of certain kinds of social expenditure. On the other hand, it is important that self-imposed fiscal limitations should not unnecessarily restrict implementation of social policies which are essential for the balanced growth of an industrial society. It is

common ground that there would not be a severe loss of investment if direct taxation were raised above the 15% limit now payable by any individual and the 17% payable on Corporation profits; and

that Hong Kong's strength as a commercial, banking and

communications centre would continue to attract investors if tax

rates were somewhat higher. It is also agreed that taxation and charges of all sorts should produce enough money for the necessary

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