Taxation Without Representation

Taxation Without Representation: The History of Hong Kong's Troublingly Successful Tax System

Michael Littlewood
Copyright Date: 2010
Pages: 376
https://www.jstor.org/stable/j.ctt1xwdhw
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  • Book Info
    Taxation Without Representation
    Book Description:

    This book tells an instructive tale of Hong Kong's tax system from 1940 (when taxes on income were first introduced in the territory) until the present day. For Hong Kong's own historians and political scientists, it supplies cogent but previously neglected evidence of the influence of the territory's business interests. For students of British imperialism, it provides a compelling case-study of relations between London and a recalcitrant colony. For Hong Kong's own tax profession, it corrects the notion that the territory’s tax system was the product of governmental design. And for tax theorists and taxpayers everywhere, it suggests how it might be possible to structure a combination of very light taxes and very low public spending so as to win broad popular support.

    eISBN: 978-988-220-535-2
    Subjects: Business

Table of Contents

  1. Front Matter
    (pp. i-vi)
  2. Table of Contents
    (pp. vii-viii)
  3. Preface
    (pp. ix-x)
    Michael Littlewood
  4. Acknowledgements
    (pp. xi-xii)
  5. 1 Introduction: The Thunder of History
    (pp. 1-22)

    This book tells the story of Hong Kong’s tax system. This is worth doing for several reasons. The first of these is simply that it is impossible to understand why a tax system is as it is, except by understanding how it got to be that way. Secondly, and more importantly, tax history is not merely the history of the tax system but also the history of society generally, cut at a new angle. This way of looking at history was clearly stated by the great Austrian economist Joseph Schumpeter, who put it in these words:

    The spirit of a...

  6. Part I: A “Partial” Income Tax
    • 2 Supporting the British War Effort: 1939–1945
      (pp. 25-68)

      By the early twentieth century, the British government regarded it as self-evident that colonial governments ought generally to finance themselves by means of an income tax. Most British colonies therefore had income taxes. Hong Kong however was exceptional: the possibility of establishing an income tax in the Colony was first raised in the course of the First World War, but nothing came of the proposal¹ and nothing further was done until just before the Second World War. The main reason was simply that Hong Kong was remote, small and unimportant. Its population doubled in the course of the 1930s, but...

    • 3 After the War: 1945–1947
      (pp. 69-104)

      The European powers, particularly Britain and France, naturally assumed that, once the war was won, they would resume their pre-war position in their Asian colonies. As Winston Churchill put it, he had not become Prime Minister “to preside over the liquidation of the British Empire”.¹ The Chinese (Kuomintang) government claimed that Hong Kong should be returned to China, but was hardly in a position to enforce the claim. A more important obstacle to the British way of looking at things was the United States President, Franklin Delano Roosevelt. Roosevelt’s grandfather had been a partner in Russells (the one important American...

    • 4 The Governor Goes Native: 1947–1952
      (pp. 105-124)

      The Hong Kong government had originally intended the Inland Revenue Ordinance 1947 as a temporary measure, to remain in force for only a year or two pending the introduction of a normal income tax. By the time the Ordinance was enacted, however, it was already clear that it would have to remain in force for rather longer and by 1952 it had become evident that it would remain in force indefinitely. The stalling of reform was due to a combination of factors. First, for all its flaws, the Ordinance had one great redeeming virtue: its yield was greater than the...

  7. Part II: More Money Than They Knew What To Do With
    • 5 A “Horse and Buggy” Statute: 1952–1961
      (pp. 127-148)

      Sir Geoffrey Follows retired in 1951 and Hong Kong’s next three financial secretaries served for about a decade each: Sir Arthur Clarke from 1952 until 1961; Sir John Cowperthwaite from 1961 until 1971; and Sir Philip Haddon-Cave from 1971 until 1981. Each dominated the process of tax reform whilst in office; each thought it obvious that a normal income tax would be better than the schedular system of taxation provided for by the Inland Revenue Ordinance; and each oversaw a committee reviewing the Colony’s tax system. This thirty-year period of Hong Kong’s tax history thus falls naturally into three phases...

    • 6 Cowperthwaite Is Reined In: 1961–1971
      (pp. 149-176)

      Sir Arthur Clarke was succeeded by Sir John Cowperthwaite, who was Financial Secretary from 1961 until 1971. The decade was marked by the continuation of the remarkable economic growth which had begun in 1945.¹ As before, this growth produced “automatic” increases in the government’s revenues, from $1,062 million in 1962 to $2,981 million in 1970. This in turn enabled the government to increase its spending enormously whilst simultaneously running large surpluses. To take a single striking instance: in 1970 Cowperthwaite granted a number of minor tax concessions, apparently because he thought the government simply did not need the money; but...

    • 7 Sincere Failure or Successful Charade? 1971–1981
      (pp. 177-206)

      From 1945 until about 1970, Hong Kong was a remote colonial trading post, a shambolic refugee camp, an emerging manufactory and a bastion against the spread of communism. That there was no basic tax reform during this period is unsurprising. By 1971, however, the Colony had already become, according to its government, “a stable and increasingly affluent society comparable with the developed world in nearly every way”¹ and in the course of the 1970s it was transformed from a comparatively unimportant remnant of the British Empire into the rich modern city-state and internationally important financial centre it is today. For...

  8. Part III: If It Ain’t Broke….
    • 8 The Modern City-State: 1981–1997
      (pp. 209-242)

      From 1981 to 1997, Hong Kong’s remarkable economic growth continued. In 1981, it was already an internationally important trading and financial centre, but by the time it was returned to Chinese rule in 1997, it was one of the richest cities in the world. The nature of the political process in the Colony had likewise been transformed, as can most clearly be seen in the composition of the Legislative Council. In 1939, when this story began, it had about twenty members. The Officials were almost all expatriates and they commanded a majority. The Unofficials were appointed by the Governor; they...

    • 9 The Return to Chinese Rule: 1997–2009
      (pp. 243-286)

      This chapter crosses the troublesome line between recent history and current affairs. The period begins on 30 June 1997, when Hong Kong ceased to be a British colony and became a Special Administrative Region (or SAR) of the People’s Republic of China. The transition was effected on the basis that, for at least fifty years, Hong Kong would be given a very special status, summed up in the slogan (attributed to Deng Xiao Ping) “One country, two systems.” China promised that Hong Kong would enjoy “a high degree of autonomy”; that the structure of its government would remain basically unchanged...

    • 10 Epilogue: Where to from Here?
      (pp. 287-304)

      The system of taxation provided for by the Inland Revenue Ordinance has been extraordinarily successful. Most obviously, it has almost always, together with the other sources of public revenue, produced more money than the government has wanted to spend. More importantly, the Hong Kong people seem curiously content with the combination of very low spending and very light taxes. And the system came through its most serious trial — the financial crisis that struck East Asia in 1997 — with colours flying. At that point, the government ran deficits for several years in a row, but the accumulated reserves were more than...

  9. Note on Sources
    (pp. 305-306)
  10. Notes
    (pp. 307-334)
  11. Bibliography
    (pp. 335-346)
  12. Index
    (pp. 347-364)