The Hong Kong General Chamber of Commerce has outlined a blueprint for profits tax reform which proposes abolition of the differential between corporate and personal tax rates. It also suggested related changes to help business - including streamlining depreciation rules and establishment of a committee to clarify tax issues before the next Budget - in a submission presented to the Government yesterday. The measures are part of what the chamber says is needed to preserve Hong Kong's status as the 'premier location to conduct business' in Asia. The Government called for submissions on profits tax changes recently after releasing a consultation document. Chamber chairman James Tien Pei-chun said in his submission that the 1.5 per cent differential between profits tax and personal income tax was introduced in the 1970s to increase revenue from direct taxation. This discrepancy was creating a 'distorting' effect, he said. 'The tax system favours people in employment who pay salaries tax of 15 per cent rather than people who take risks, set up their own corporations and receive business profits taxed at 16.5 per cent,' he said. This was leading some businesses to pay huge 'salaries' to their management in order to avoid the higher profits tax. A chamber spokesman later said any moves to cut salaries tax should only be considered once corporate and individual tax rates were at the same level. A second chamber recommendation involves the distinction between the depreciation of industrial and commercial buildings. Under current law, drafted when Hong Kong was more of a manufacturing base than a service centre, industrial buildings receive a higher annual depreciation allowance than commercial structures. 'They should be treated in the same way,' the chamber's chief economist, Ian Perkin, said yesterday. A further recommendation concerns where profits are sourced - an issue that has become clouded in a series of recent court battles. The chamber said there had been disagreement on what constituted profits 'which arise in or are derived from Hong Kong', as well as what added up to the 'carrying on of a trade or business' in the SAR. The chamber said it would be in the interest of the business community if a committee of professionals, businessmen and Government representatives reviewed these issues and made recommendations prior to the next Budget. It also suggested publication of tax rulings to provide guidance to other taxpayers.