D.--In the proclamation referred to here, in which free trade is permitted at all harbours in Ceylon in the Company's territory, it is clearly stated that the harbours may be freely entered with merchandise, provided the customary duties are paid, and that only the subjects of the Kandyan King are exempted from the payment of these. It does not seem to me that this rule is in agreement with the supposition that because of this free trade the duty on foreign and native cloth would be abolished. If Mr. Zwaardecroon had made inquiries he would have been informed that, as far as the import of foreign cloth is concerned, the duty is the same as that in Colombo and Galle. The proposed change would apparently bring about an increase of the alphandigo, but where then would be found the Rds. 7,1 0 as duty on the native and foreign cloths? I cannot see on what basis this proposal is founded, and I therefore think that the Customs duty of 20 per cent. on the imported foreign cloths and the 20 per cent. for the stamping of native cloths must be continued when, on the 31st December next, the lease for the duty of 25 per cent. expires, the more so as it has been pointed out in this Memoir wherever possible that the inhabitants are increasing in prosperity. This agrees with what was discussed at the general Paresse. With regard to the Moorish merchants from Bengal, there would be no objection to the duty on the cloths imported by them being fixed at 7 1/2 per cent., because they have to make a much longer voyage than the merchants from Coromandel and other places on the opposite coast; while we have to humour them in order to induce them to provide us with rice. Moreover the Bengal cloths are not very much in demand, and these people usually ask to be paid in elephants, which do not cost the Company very much, rather than in cash, as has been done again by the owner of the ship that is here at present on behalf of the Bengal Nabob Caungaarekan. He also complained of the duty of 20 per cent. and said he would pay no more than the Company pays in Bengal. He said his master the Nabob would be very angry, &c. We therefore considered whether the duty could not be reduced to 7 1/2 per cent., as may be seen in the resolutions of June 4 last. On December 12, 1695, a letter was received from Batavia in answer to the difficulties raised by Mr. Zwaardecroon with regard to these impositions, in which it is said that the Customs duty for Bengal from the date of the license for free trade should be regulated as it had been in olden times, with authority to remove difficulties in their way and to give them redress where necessary. I found that the duty paid by them formerly on these cloths was 7 1/2 per cent., both in Galle and here, and I therefore authorize Your Honours to levy from them only that amount. This must be kept in mind at the farming out of these revenues at the end of the year, in order to prevent difficulties with the farmer, as happened only lately. I