The Government should offer tax concessions to help businesses prepare for the challenge of increased competition when China joins the World Trade Organisation, according to the Hong Kong Society of Accountants (HKSA). The society also says tax incentives should be offered in the next budget to boost Hong Kong as a regional e-commerce hub. Among the tax breaks suggested are ones to help businesses set up liaison offices in the mainland, and a cut in profit tax to encourage manufacturers to stay in Hong Kong, rather than relocate across the border. In the longer term, the society says Hong Kong will need to widen the tax base, because at present 'far too few people are paying the majority of tax'. The government is wrestling with the issue of how to reduce the budget deficit - forecast at HK$11 billion this year - and whether it is part of a wider structural problem with the economy. Some experts say the deficit may be higher. The HKSA recommendations were given to Financial Secretary Donald Tsang Yam-kuen last month. He will discuss the recommendations with the HKSA and other professional bodies in January before announcing the budget in March. Tim Lui Tim-leung, chairman of the HKSA taxation committee, said despite the expected deficit, the Government had an urgent need to bring in tax incentives to enhance Hong Kong's competitiveness ahead of China's WTO accession. After entering the WTO, China will allow foreign investors to invest directly in its market, and Hong Kong may lose its role as a middle man for international players to access the mainland. 'We need to increase incentives to attract regional businesses to establish here,' Mr Lui said. The HKSA suggests the Government set up a resource centre to provide information and courses related to the WTO. Companies using it should gain a tax concession three-times the amount they spend on the centre. It also suggests a 100 per cent deduction for the cost of local firms setting up liaison or representative offices in China. It suggests a cut in profit tax to 8 per cent - from 16 per cent - for manufacturers in Hong Kong for five years to encourage more of them to set up here. Mr Lui said this would help maintain Hong Kong as a manufacturing base - a position it has lost to southern parts of China as those cities have cheaper land and labour. 'If you look at other fairly recent economic successes overseas, such as the Republic of Ireland and Singapore, they have introduced corporate tax concessions to help stimulate development,' he said. The HKSA also proposes a range of incentives to encourage e-commerce and information technology (IT). 'We want to see Hong Kong emerge as the regional e-commerce hub,' said Yvonne Law, deputy chairman of the HKSA taxation committee. The HKSA proposes a 50 per cent cut in profit tax for 'cyber traders' - foreign firms which use Hong Kong as an incubator for Internet trading activities in Asia. It also calls for tax concessions worth three-times a firm's expenditure on hiring IT consultancies to improve technology. It suggests increasing the tax deductions for self-education expenses from HK$30,000 to HK$90,000 to encourage enrolment in IT training courses. The Government should also consider offering a HK$30,000 allowance on salaries tax for the public to buy personal computers, and tax deductions for companies on the cost of developing their Web sites, it said. The HKSA said the Government should study how to widen tax bases, as at present only 1.2 million workers - representing one-third of the workforce - paid tax. About 100,000 citizens - 8.3 per cent of all taxpayers - were paying 61 per cent of all salaries tax. About 500,000 were paying 34.6 per cent, while the remaining 600,000 were paying only 4.4 per cent. In addition, 5 per cent of companies were paying 80 per cent of all profit tax. 'There are too few people and companies paying too much tax. This is dangerous as if these small group of taxpayers have any financial trouble and pay less tax, the Government's income would be seriously affected,' he said.