HONG KONG has lost out to Singapore as a centre for foreign currency trading, offshore fund management and venture capital funds because of unclear tax policies, a tax expert says. KPMG Peat Marwick senior partner Roderic Sage said yesterday: 'Singapore has won the game in certain areas. To date, Hong Kong has probably only lost fund management business and venture capital funds to Singapore as a direct result of tax incentives. 'But financial institutions have set up operating units in Singapore because of a perceived lower cost of doing business.' Theoretically, all offshore income was exempt from tax in Hong Kong, but vague definitions of such income could expose banks to different tax rates, sometimes to the full 16.5 per cent. Singapore offers a preferential tax rate of 5 or 10 per cent. Mr Sage cited as an example the Inland Revenue Department's practice notice number 21 issued in 1992, which defined offshore loans as those initiated, negotiated, approved and documented by parties outside Hong Kong. While such definitions can be controversial in Hong Kong, Singapore has clearer guidelines. These state that interest on loans in foreign currencies, made by and to be used by persons outside Singapore, (where interest on such loans is not borne directly or indirectly by anyone in Singapore,) is subjected to a tax rate of 10 per cent. Mr Sage said the banking and accounting sectors had voiced their concerns openly after Hong Kong Monetary Authority chief executive Joseph Yam Chi-kwong addressed the issue in May. 'It is clear the shadow was removed when Mr Yam talked about the level playing field. He gave confidence for people to stand up and talk about it.' At a seminar held in May on Hong Kong as an International Financial Centre, Mr Yam raised concerns about whether Hong Kong was competing with its neighbouring jurisdictions on a level playing field. 'I believe that in this area of taxation on offshore financial business, we now need to consider again whether changes are needed in Hong Kong,' he said. 'Serious consideration should be given to levelling the playing field.' His remarks were a turning point as the authorities traditionally believed that tax incentives contradicted the territory's laissez faire policy. Mr Sage believed more professional bodies would lobby for tax incentives for offshore banking operations in the 1996-97 Budget. The territory's 'outdated' tax regime also came under attack from professional groups, including the Hong Kong Society of Accountants. They see it as a failure by the authorities to cope with the needs of a modern financial centre in areas such as cross-border derivatives trading. Mr Sage said authorities were cautious in reviewing the tax regime, which had not been reviewed drastically for 20 years, for fear of political interference.