THE Government could broaden the territory's tax base and create a more stable source of revenue by introducing a sales tax, a senior tax partner for KPMG Peat Marwick says. Roderic Sage, who warned of Hong Kong's 'partial reliance' on revenues from property tax, said yesterday its impact could be offset by reductions in profits and income tax. Mr Sage, who was presenting the public accountants 1994-95 Budget predictions, said the Government was on line to meet its projected surplus of about $7.7 billion, despite a fall in revenues from land and share transactions. But Mr Sage said the Government easily could meet any shortfall by calling on more than $20 billion held in its 'miscellaneous services', in the general revenue account, and 'additional commitments' in its capital investment fund. 'The downturn in the property and stock markets which Hong Kong has experienced during the past six months will not have a material effect on the collection of two of the Government's principal sources of revenue, namely profits tax and salaries tax, he said. 'We also expect that any shortfall in the budgeted revenue from land premium and stamp duties will be covered by over provisions of expenditure contained in the General Reserve Account and Capital Investment Fund.' He said the Government had failed to address the 'thorny issue' of a narrowing tax base. 'With all our Asian neighbours adopting a form of consumption tax as a means of providing their governments with a stable revenue base, it must surely be only a matter of time before the Government is forced to do the same.' He said a reduction in profits tax or the standard rate of salaries tax was unlikely and the reduced budget surplus meant there was no fiscal reason for increasing tax allowances by more than the rate of inflation. 'At a time when the salaries tax base is in danger of becoming even narrower, we question whether any further amendment to the bands is necessary,' he said. 'Should the Government wish to give the lower income earners tax concessions, the Financial Secretary might want to consider a one-off refund, a system that has been used in Singapore.' Mr Sage said the increasing need to widen the tax net could be met by a sales tax. 'While it is clearly a difficult decision to take, it would nonetheless be a valuable source of revenue to the Government. Proof of this can be found from our neighbours, most of whom have a form of sales tax. 'Although we support the necessity for a stable tax base, we would not advocate the introduction of a sales or consumption tax without a material reduction in profits tax and salaries tax, such as 15 per cent for profits tax and 10 per cent for salaries tax.' The call for widening the tax base was supported by Coopers & Lybrand. In addition, Coopers called for the strengthening of their field audit and tax investigations. 'The field audit initiative has produced positive results not only in terms of collecting back taxes, but in acting as a deterrent to potential perpetrators. 'We support the further expansion of this initiative as well as the existing work carried out by the investigation section of the Inland Revenue Department.' Coopers also called for a strengthening of measures to control property prices, which it predicts will re-emerge as a problem because of a supply shortage.