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enforcement to be perused and compared with several of the provincial laws and regulations presumably issued under its sanction and which have been sent to me from time to time by the American consulates concerned.

With specific reference to the national law of June 13, 1931, it would appear that the name given to the tax in question does not correctly describe what is in reality a business income tax levied upon the capital or income of the several businesses classified in the law.

The law calls for the imposition of a tax on income or capital according to a system of schedules of graduated rates. Such a system is extremely difficult of equitable application. Schedules of uniform rates would be far more equitable. Under the present provisions of the law a merchant doing a nation-wide business, whether Chinese or foreign, lacks any assurance that the tax will be uniformly administered either among the several provinces or in relation to taxes on the same or similar lines of business.

As now written the national law is very vague as to classification of businesses to be used as a basis for the assessment of taxes against capital, gross income, and net profits. In consequence, the business man is left in great uncertainty as to the category into which his business is to be placed for purposes of taxation in the several provinces. Each of these classifications should be carefully defined in the law and the method of the application of the tax should in each instance be clearly set forth. For instance, in the case of a tax against net profits it is to be presumed that an audited statement of profits would be required. The law should stipulate what qualifications an auditor should have.

Your Excellency's attention is also called to the ambiguity of Article 8, from the language of which it is not clear whether it is intended that no additional taxes of any nature whatsoever are to be collected from firms paying the business tax or whether it is proposed merely that no surtax is to be collected on the business tax. The real intent of this Article is of the utmost importance and is naturally of great interest to both Chinese and foreign firms. It is accordingly most desirable that the wording of the Article be amended so as to remove the existing ambiguity as to its significance.

Whereas Article 9 of the law would appear to call for the setting up of official agencies for the collection of this tax, my information is that in Peiping and in Shanghai the local chambers of commerce are to be entrusted with the task of such collection. There would appear to be objection to such a method of collection because chambers of commerce, although possibly possessing a quasi-official status, are composed of members of the business community and there would always exist among those liable for the payment of the tax a feeling that favoritism might be shown by a chamber committee to certain firms.

A still more serious objection to the law as it now stands concerns itself with the failure to provide non-administrative machinery for the handling of complaints against over-assessment, and an opportunity for appeal against decisions as rendered. Such machinery should be of a nature to ensure against unreasonable delays and against an unjust application of the law to firms amenable thereto.

With reference to provincial legislation, a perusal of the laws and regulations issued in the provinces of Hupeh and Liaoning indicates that the great latitude accorded to the provinces in the interpretation of the national law has resulted in a wide divergence from what appears to have been the intent of that law.

For instance the law promulgated for the province of Liaoning specifies rates of taxes greatly in excess of the limits set in the schedules mentioned in the national law.

Penalties under the Liaoning regulations, as well as under the regulations issued by the province of Hupeh, are to be administratively and arbitrarily imposed, no provision being made whereby the individual may have his liability passed upon by a proper court of justice.

The Liaoning regulations further contain a very objectionable provision for the payment, out of fines, of rewards to any one discovering a tax delinquency.

In view of the considerations outlined above, I venture to suggest to Your Excellency that this whole subject be given further careful consideration to the end that an equitable, precise, and centrally controlled system be evolved which, while meeting the revenue needs of the provinces, will not be an undue burden on business. I avail myself (etc.)


893.156/44 : Telegram

The Acting Secretary of State to the Minister in China (Johnson)

WASHINGTON, August 17, 1931-1 p. m. 278. Your 508, August 11, 6 p. m. It would be difficult for Department to maintain the proposition set forth in the first sentence of paragraph 2 and Department is of the opinion that that sentence should be deleted and appropriate change made in concluding sentence of proposed note. Otherwise, Department approves text of note.



893.156/46 : Telegram

The Minister in China (Johnson) to the Secretary of State


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PEIPING, September 15, 1931–11 a. m.

(Received September 15—2:10 a. m.] 583. My 508, August 11, 6 p. m. Following from Cunningham: 80

6 “September 14, 4 p. m. My despatch No. 6925, June 8th enclosing

4 foreshore regulations. Shanghai Municipal Gazette August 20 contains revised foreshore regulations in nine articles only promulgated July 31. Revised regulations draft for articles 1, 2, 3, 4, 5, 6, 11, 19 and 20 of former regulations with minor modifications in those articles. Remaining articles of former regulations omitted. Standard Oil Company has been again approached to obtain foreshore permit fee. Despatch follows." 62



893.512/1169 The American Minister in China (Johnson) to the Chinese Minister

for Foreign Affairs (C. T. Wang) No. 364

PEIPING, September 25, 1931. EXCELLENCY: I have the honor to inform Your Excellency that the American Consul General at Hankow reports the recent imposition of certain taxes in Hunan, namely, wharfage dues, a dike surtax, and a production tax, which are collected in the form of a surtax on all imports and exports. A copy of the proclamation issued by the Provincial Government regarding the collection of wharfage dues and the dike surtax is enclosed 61 for the information of Your Excellency.

Acting under instructions from my Government, the American Consul General at Hankow protested against the collection of such taxes, and under date of August 5, 1931, addressed a formal communication, a copy of which is enclosed, 61 to the Chairman of the Hunan Provincial Government. A copy of General Ho Chien's reply of September 4, 1931, is also enclosed.61

Inasmuch as these taxes are definite surtaxes on imports and exports, I must strongly protest against their collection, in so far as American firms are concerned. Furthermore, I desire to call Your Excellency's attention to the fact that in a proclamation dated July

** Edwin S. Cunningham, Consul General at Shanghai.

Not printed. * Not printed; for résumé, see telegram No. 694, October 3, from the Minister in China, p. 1006.

Copy transmitted to the Department by the Minister in China in his despatch No. 1189, September 25; received October 26.


20, 1927, the Chinese Government announced its intention of abolishing all forms of taxes levied in the name of "likin” as well as destination taxes, and that this policy was confirmed in Annex III of the Sino-British Tariff Treaty of 1928, and by a Supplementary Mandate dated October 6, 1930. The abolition was made applicable to all parts of China and became effective on January 1, 1931. My Government feels, therefore, that in view of the history of the negotiations whereby there were concluded the treaties establishing China's tariff autonomy and of the provisions of those treaties relating to national tariffs, uniformity of duties on all Chinese frontiers, and most-favored-nation treatment, and in view particularly of the items cited above, it would appear entirely out of harmony with the letter and the spirit of the pronouncements and pledges of the Chinese Government for that Government or its provinces or municipalities to establish provincial import duties or to reestablish under any name or form taxes equivalent thereto or taxes which have been abolished in pursuance of pledges. I, therefore, have the honor to request that instructions be issued to the Chairman of the Hunan Provincial Government to stop the collection of these imposts on shipments of American merchants. I avail myself [etc.]


893.156/48 : Telegram

The Minister in China (Johnson) to the Secretary of State

PEIPING, October 3, 1931–8 a. m.

[Received October 3–4 a. m.65] 694. Legation's 583, September 15, 11 a. m. Cunningham, in mail despatch September 18, presumedly which is being forwarded to the Department,66 states that revised regulations on several of the objectionable articles such as those as provided for taking over of wharves and deposit of cash security equivalent to a 6' months' fee and that as regulations now stand only two points appear to be involved:

(1) That the riparian owner in order to avail myself [himself] of the use of the foreshore must apply to the Land Bureau for a permit; and,

(2) That he must pay a license fee to the Land Bureau for the privilege of using this foreshore.

The Consul General also reports that Standard Oil Company and Robert Dollar Company have recently received renewed requests from Land Bureau for payment of half yearly fee on their respective properties and that he advised them pending conclusion of negotiations with Chinese authorities the question of payment of this fee should be held in abeyance.

* Telegram in two sections. “Not printed.

This is also the attitude of the British Consulate General.

The Consul General considers that the revised regulations represent an attempt on the part of the local Chinese authorities to meet the objections of interested Consuls; that in all probability the Chinese will not go further towards meeting our wishes in the matter; that therefore he is inclined to recommend that the Legation accept these revised regulations as a compromise and that American firms then be told that there was no objection to paying the fee in question. He adds, however, that before taking any action he requests instructions of the Legation. I concur in the opinion of the Consul General and suggest that we temporarily accept these regulations but desire Department's approval.


893.156/48 : Telegram
The Secretary of State to the Minister in China (Johnson)

WASHINGTON, October 9, 1931–4 p. m. 373. Your 694, October 3, 8 a. m. in regard to Shanghai foreshore regulations.

1. Until the Department has received Shanghai's mail despatch of September 18,87 with which it is presumed that a copy of the revised regulations are being transmitted, the Department prefers not to approve Shanghai's recommendation that the revised regulations be accepted and that American firms be advised to pay the required fees.

2. The Department desires to know (a) whether the revised regulations have been communicated officially by the Chinese authorities either to the Consulate General at Shanghai or to the Legation; (b) whether the Legation has received a reply from the Minister for Foreign Affairs to the Legation's note of August 20,68 and (c) whether the British Minister and/or your other interested colleagues are prepared to accept the revised regulations and to advise their nationals to pay the required fees.

3. If the Chinese authorities at Shanghai continue to press American nationals to comply with the revised regulations, the Consul General, in his discretion, may inform the Chinese authorities that he has advised American nationals not to comply pending the receipt of instructions from his Government.


Not printed. " See telegram No. 508, August 11, 6 p. m., from the Minister in China, and telegram No. 278, August 17, 1 p. m., to the Minister, pp. 1000 and 1004.

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