File No. 8573.
Minister Beaupré to the Secretary of State.
Buenos Aires, August 9, 1907.
Sir: I have the honor to report that on the 6th instant National Deputy Emilio Mitre presented in the Chamber of Deputies a project of law relating to future railway concessions and to existing railways in the Argentine Republic. The three principal objects of the bill are to make general regulations for all future concessions; to establish uniformity in the privileges granted to railway companies and as regards governmental control of their tariffs; and to impose a fixed percentage tax on their net profits in exchange for their exemption from taxation and from customs duties upon materials for construction and operation.
The bill provides that until 1947 (when the privileges granted to the Southern Railway will cease) all materials imported for future railways will be free from duties, in consideration of an annual payment of 3 per cent upon the net profits, which will also free the company from the national, provincial, and municipal taxes. The existing companies may, within six months from the promulgation of the law, declare their option to avail themselves of the privileges, provided that they agree to pay the tax and consent to be subjected to the operation of article 9 of the bill, which declares that the national executive shall fix the tariffs when the gross profits of the railway have in three successive years exceeded 17 per cent upon its capital in shares and debentures, the working expenses being limited to 60 per cent of the receipts, and not to include remuneration of persons paid by the company abroad. For these purposes the capital will be fixed by the executive when the line is opened, and may not be increased without its consent.
If the existing companies do not declare such option within the six months, they will be subject, at the expiration of the term of their privileges, to the payment of all taxes and duties and to the prescriptions of the law in other respects.
In this way uniformity of privileges and obligations will be established at the expiration of forty years at the latest. Afterwards the privileges will only be retainable by payment of a tax of 3 per cent on profits.
I give below a summary of the speech made by Deputy Mitre in presenting his bill, which defines very clearly the policy which he thinks should be pursued in relation to railways:
The project which I submit to the House is susceptible of division into two parts, one of which has reference to the railway concession hereafter to be made by Congress, while the other treats of the railways already existent. In reference to the first I have deemed expedient the incorporation into one legislative scheme of all the general provisions consigned in the latest railway concessions approved by Congress and sanctioned in a certain measure by experience, with certain modifications counseled by the exigencies of practical application. I have also introduced a capital reform in the creation of a railway tax, in virtue whereof the companies will, for the first time, contribute to the defrayment of public expenditure.
[Page 43]As far as concerns the future concessions to be granted by Congress, it will be undoubtedly advisable to reduce their clauses to a uniform scheme under one comprehensive enactment. In my project I have introduced those clauses generally counseled by the public offices of that department and already sanctioned, as I have just said, by Congress on numerous occasions.
Article I of the project clearly defined this idea, laying down specifically that the provisions of the project shall be valid for all railway concessions, either in respect of main lines or branch lines to be granted in future.
The Subsequent articles contain the provisions of a general character to which I have referred and which are connected with the adoption of rolling stock, the weight of rails, and accessory materials; with the fixing of the terms within which the initial process of the concessions must take place, i. e., from the signing of the contract, submitting of the plans, commencement of their works and their eventual termination; the guaranties necessary to insure the performance of the obligations assumed by the concessionaires; the penalties to be incurred by them in default of such performance; the declaration of public utility in reference to the ground occupied by tracks, stations, sheds, and other constructions connected with the concession.
In article 8 is set forth the principal reform contained in the project, namely, that in reference to the creation of a tax of 3 per cent upon the profits of each company, under exemption from every other form of import.
It is well known that in this country there has prevailed in the matter of railway concession a policy of ample liberality, perfectly justified by the necessities of the time in which the first lines were built. At that time it was a matter of urgency to promote the introduction of foreign capital by insuring to it all possible protection, and this has been the invariable rule in our legislation. The national constitution lays down in article 67 as one of the attributes of Congress the task of furthering the construction of railroads by granting privileges of a temporary character. In the course of time and as the result of the progress of the country, the position of the railway companies has progressively improved and at the present day the capital invested therein is well remunerated. The moment has therefore arrived in which, without departing from the policy of encouragement and stimulation with respect to these companies that have contributed so greatly to the progress of the country, we should put upon them the same obligations that already fall upon the other taxpayers of the nation by claiming from them the contribution of a portion of their gains toward the maintenance of the public administration. The best form of imposing this contribution has seemed to me that of a tax upon the profits of the companies, thus initiating a tributary legislation based upon a tax upon income, which basis is adopted in nations more advanced than ourselves and has almost universal sanction. The proportion I have adopted of 3 per cent upon the profits is the same that for many years has ruled in England for the collection of the “income tax,” and represents a very moderate burden, seeing that it would be the only one the companies would have to bear.
By article 9 of the project is established the intervention of the executive power in the fixing of the tariffs, another point of capital importance in this kind of transport service. I have fixed upon the proportion of 17 per cent between the receipts and the capital of the companies’ lines as the determinant for the intervention of the Government in the tariffs, and in so doing have proceeded on considerations of a technical order that will more properly be dealt with in detail when the project is discussed, and on which I here confine myself to a mere reference. I think the provision is an equitable one, leaving on the one hand to the companies a sufficiency of net profit to insure to the capital they invest the remuneration to which they may legitimately aspire, whilst completely excluding the possibility of gains so exorbitant as to imply an extraordinary burden upon the factors of production which utilize the carrying power of the companies.
The following articles of the project contain obligations implying a reduction in the tariffs for the conveyance of material and articles belonging to the nation, intended for the construction of national public works authorized by acts of Congress; equality in the tariffs of the telegraphic service; the obligations of the companies to convey the public mails free of charge; to permit the construction of telegraph lines and other complementary clauses inclusive of one of a general character relative to the intervention of Government in the inspection of the works of the concession; and to the right of the State of expropriation [Page 44] at any time, on the basis of the recognized capital of the companies plus a compensation of 20 per cent.
I ought to add that the proceeds of the tax of 3 per cent will be applied, as appears in the respective article, in their entirety to the construction and repairing of roads and bridges in the municipalities traversed by the railroad, and especially of those roads leading to the stations. In this way I think I have conciliated the legitimate interests of the provinces traversed by the national lines, by contributing to the expenses they necessarily incur in respect of the police and sanitary services in connection with railroads.
This, then, so far as future concessions are concerned. This project being converted into law, we shall have the permanent standard of reference for all concessions that may hereafter be made, on a basis of uniformity and equality for all.
But the existing railway companies are governed by provisions not contained in the present project, except partially and in certain determinate cases. Under these circumstances, I have included in the project two articles empowering the existing railway companies to avail themselves of its prescriptions. In so doing I believe I have consulted not only the public interest but also that of the companies. When I say the public interest, I do not so much refer to the interests of the treasury as to the propriety of placing upon a regular footing the position of great factors of national activity which in their relations with the Government of the country are to-day under the rule of variable provisions not always based on legality or equity.
Recently the procurador fiscal, at the behest of the minister of finance, issued a document specifying the conditions of all the railway companies now existing in the Republic, from the point of view of their relations with the national treasury, which shows a surprising disparity in their various standings.
Thus, for instance, the Buenos Aires Western Railway at the present time is exonerated from all customs or other dues, and yet there exists no law of Congress granting this exemption, which is based solely upon a decree of the National Executive, of the 28th November, 1891, without legal force.
The Southern Railway did not enjoy any exemption from taxation. The exemption it now has it obtained in a manner that seems to me a little creditable to a company of such importance. In January, 1896, toward the end of the sessions, when Congress lacks the time for the mature consideration of its sanctions, there was conceded to the Compañía del Sur the right to extend its line from Bahia Blanca to Neuquen. It was a line of strategical importance from a military point of view, urgently required by the country by reason of its then circumstances, under the threat of a conflict with Chile. The company demanded a subsidy for the construction of this line of $750,000 gold. This premium was in itself sufficiently substantial, but it involved an addendum which rendered it much more so. Whenever I think of this concession I recall to mind the case of the penitent who contritely accuses himself of having stolen a rope, and when the confessor comforted him saying it was no great matter, the penitent added that at the end of the rope was a horse. The company got the premium from Bahia Blanca to Neuquen—that was the rope; but at the end of the premium was the exemption during fifty years from all taxes, whether national, provincial, or municipal—that was the horse. This exemption is equivalent, according to calculation, to several times the capital of the company during the course of the fifty years, etc.
It is thus clear that the situation of these companies is entirely lacking uniformity, unduly favorable to some, to the detriment of others. It is desirable to introduce the uniformity, at present so deficient, in order that the position of these factors of our present and future progress may stand on a perfectly equable basis for all, in which the interests of the companies as well as those of the Republic may be both conciliated in accordance with the principles of justice and equity.
It is quite probable that during the present session of Congress there will be some railway legislation based upon the fundamental idea of Mr. Mitre’s project. At the proper time I will report again to the department.
I am, etc.,