TAX practitioners have called for a 1.5 per cent cut in the corporate profits tax rate and the broadening of tax allowances to fight inflation and unemployment in the run-up to the 1997 handover. The Taxation Institute of Hong Kong yesterday urged the Financial Secretary to bring down the corporate profits tax rate to 15 per cent from 16.5 per cent in the 1996-97 Budget, the last to be solely prepared by the Hong Kong Government before the territory returns to China rule. The institute said the move would incur minimal pressure on Government revenue but would be a positive measure to revamp the sluggish economy and promote investment incentives straddling 1997. The institute's 15-point proposal concerning tax cuts and expansions of tax allowances was submitted to the Financial Secretary on Monday. The proposals, if accepted, would cost the Government no more than $1 billion in tax income in the next financial year. Institute vice-president Marcellus Wong said the proposed cut would increase disposable capital in the business sector, promoting incentives to reinvest in the territory. 'We estimate the 1.5 per cent cut in corporation tax rate will only raise a revenue loss of about a few hundred million,' he said. 'Against that, we have reserves of more than $180 billion. 'We think that the cost to the reserve is worthwhile as we are sending a positive message to investors that we will keep our tax rate low to strengthen incentives for investment.' The tax cut would not aggravate inflation because inflation would only deteriorate in times of full employment, which was the case facing the territory, according to another Institute executive, Alexander Mak. Other proposals included pegging personal tax allowances to the inflation rate through an automatic indexation scheme. The system would adjust the allowances annually based on inflation to reflect the rise in cost of living. Mr Wong said the system would lead to a $7,000 to $8,000 increase in personal allowances for a taxpayer earning a yearly income of $79,000 if calculated on an inflation rate of about nine per cent. The institute recommended a 10 per cent annual depreciation allowance on expenditures on decoration, structural improvement, fittings and fixtures which formed part of the setting for business. The annual allowance is now two per cent. Companies that embarked on research and development projects should be granted 50 to 100 per cent allowances on their research and development investments, the institute said. It urged the Government to establish an international tax treaty with other countries to eliminate double taxation. Hong Kong had relief arrangements with Commonwealth countries only and it was essential for the territory to extend the relief to neighbouring Asian countries, Europe, and countries in North America, the institute suggested.