893.5034 Business Tax/3: Telegram
The Minister in China (Johnson) to the Secretary of State
93. [From Perkins.25] 1. American Consul General at Hankow, in compliance with the Department’s 62, February 20, 5 p.m., reports:
“I anticipate strong efforts on the part of the Chinese authorities to enforce collection of this tax from foreign firms unless issue can be amicably adjusted between Ministry of Foreign Affairs at Nanking and foreign diplomatic representatives.”
2. American Consuls at Foochow and Chefoo report that the authorities are seeking to enforce general business tax which would entail examination of record books of all firms both Chinese and foreign. Circular instructions are being requested to assist in the investigations incidental to the application of the tax to their nationals.
3. Action of Chinese provincial authorities is apparently based on “general outline for the business tax” recently approved by Executive Yuan and circulated to provinces (see my despatch 824, February 2726). American Consul at Nanking has been instructed to procure unofficially text of this “outline”. Business tax is understood to be a provincial tax authorized by Nanking to be used for local purposes in partial compensation for loss of likin.
4. Reference paragraph 3, Legation’s 71, February 16, 7 p.m., British Legation states British Government takes position that business tax proposed is in violation of treaty rights and is not to be recognized as applicable to British subjects. Also that tax will be subject of representations to Ministry of Foreign Affairs by British Minister upon his return to Nanking.
5. From a purely practical standpoint the Legation submits the following comment:
- (a)
- The Chinese possess an infinite capacity for the evasion of taxes not based upon land or other concrete objects. Therefore in practice such a tax would fall more heavily upon foreign firms.
- (b)
- Since the tax is a local one the question of the taxation of foreign firms is somewhat analogous to that of foreign taxation for municipal purposes which the Department has approved if paid as “voluntary contributions”. If the business tax is actually enforced against Chinese it will prove in quarters [practice?] extremely difficult for foreign firms to insist upon complete exemption; for the Chinese authorities will maintain that Chinese business would thus suffer discrimination and they are naturally in a position definitely to obstruct by various devices the recalcitrant foreign firms.
6. In answering inquiries from consular officers is the Legation to be guided by Department’s 62, February 20, 5 p.m., regarding Hupeh tax or does the Department desire to follow a policy somewhat more in accordance with its attitude toward municipal taxation?
Repeated to Minister at Nanking.