The Budget was 'prudent' and a step in the right direction, business associations, property tycoons and professionals said. They said a 1.5 per cent increase in profits tax was acceptable, but warned any further rise would undermine Hong Kong's low-tax regime and impair its ability to attract new investment. American Chamber of Commerce chairman Jim Thompson said Hong Kong people and enterprises had been prepared for higher tax rates. 'No one should be upset about it,' said Mr Thompson. He said the chamber had expected an increase of 2 per cent in corporate tax and the announced level was 'pretty mild'. Cheung Kong (Holdings) chairman Li Ka-shing also backed the 1.5 increase in profits tax, while Sun Hung Kai Properties chairman Walter Kwok Ping-sheung said Hong Kong still had a lower tax rate than most of Asia. The Chinese Manufacturers Association, Federation of Hong Kong Industries and Hong Kong General Chamber of Commerce said they would have preferred to see a 1 per cent rise in profits tax. Paul Yin, vice-president of the Chinese Manufacturers Association, said it hoped that the increase in profits tax would not become a trend as other neighbouring countries were lowering their tax rates. Victor Lo Chung-wing, chairman of the Federation of Hong Kong Industries, said an increase of 2 per cent or more in profits tax could hit investment interests. 'Given the economic climate, the 1.5 per cent increase is acceptable,' said Mr Lo. 'As the deficit decreases and our economy improves, we hope that the government will revert profits tax to the level prior to today's Budget,' he said. Hong Kong General Chamber of Commerce chairman Christopher Cheng Wai-chee said the Budget was an important first step but much still remained to be done, both in reducing public expenditure and readjusting revenue enhancement, in order to reach a balanced budget by 2006/07. 'The intention to seriously study the implementation of the goods and services tax is a prudent decision, to prepare for the day when economic conditions warrant such a tax,' he said. Tim Lui Tim-leung, chairman of the taxation committee of the Hong Kong Society of Accountants and a partner of PricewaterhouseCoopers, said the deficit would still be $60 billion next year. 'The government may need to consider a sales tax for the long term to increase its revenue to solve the deficit,' he said. The Federation of Hong Kong Hotel Owners said the increase in air passenger departure tax from $80 to $120 was acceptable.