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

No. 1275

Sir: I have the honor to refer to the Embassy’s despatch No. 1180 of April 13, 1937,66 in regard to the proposed increase in consolidated taxes on cigarettes, and to enclose for the information of the Department copies of despatch No. 824, dated June 1, 1937, from the Consul General at Shanghai to the Embassy66 on the subject.

[Page 657]

Mr. Gauss reports that the increase in the taxes has been substantially reduced and that the tax rate on cigarettes selling from $200 to $300 per case is only increased by $20 instead of by $120 as at first proposed. He states that the reason for this adjustment is not certain; it may have been brought about as a result of the representations made by the American and British authorities; and on the other hand he has heard from the Yee Tsoong Tobacco Company that they threatened drastic price readjustments on several brands offering strong competition to brands manufactured by the Nanyang Brothers Tobacco Company unless the consolidated tax rates were reduced. This threat, according to a member of the Yee Tsoong Tobacco Company, was promptly reported to Mr. T. V. Soong, who now owns a controlling interest in the Nanyang Brothers Tobacco Company, and resulted in Mr. Soong taking up the question of consolidated tax rates on cigarettes with the Ministry of Finance.

Mr. Gauss states that the action of the Ministry has resulted in only a slight increase in the rate of taxation on cigarettes using American leaf, the majority of such cigarettes selling for from $200 to $300, and is of assistance to importers of American leaf. He adds, however, that this adjustment in rates is only temporary and may not be made effective beyond the end of this year.

Respectfully yours,

Nelson Trusler Johnson
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