Hong Kong will still have the lowest corporate tax rates in Asia following the decision to raise taxes by 1.5 percentage points. But the move also means the competitive gap between Hong Kong and its nearest rival, Singapore, is narrowing. Mr Leung said tax for corporations would rise to 17.5 per cent from 16 per cent while rates for unincorporated businesses would rise to 16 per cent from 15 per cent. The changes are to be made immediately for corporations, but in two phases over two years for unincorporated businesses. When they are all in place, they are expected to raise an extra $3.5 billion. Under the new rates, HSBC, for example, would have had to pay an extra $434 million in taxes last year, according to rough calculations based on the $29 billion profit from its Hong Kong operations announced on Monday. Mr Leung said: 'Our competitive edge will not be affected by the revision in profits tax rates. The proposed rates are still lower than those in neighbouring economies and the 18.5 per cent rate we had in the 1980s.' However, Guy Ellis, a tax services partner at PricewaterhouseCoopers, was worried that the changes would mean Hong Kong is losing its competitive advantage to places like Singapore, which is expected to cut its company profits tax rate to 20 per cent next year from 22 per cent. 'On the profits tax side, there is a question mark about competitiveness,' Mr Ellis said. 'Singapore has been reducing tax rates significantly, Hong Kong has been stable.' But other tax experts were not so concerned. Bill Bowman, president of accounting association CPA Australia, said companies would see the tax increase as a minor price to pay to revive Hong Kong's economy. 'Of course, businesses will prefer as low a profits tax rate as possible. But I think also businesses would be concerned if there were ongoing budget deficit issues as well.' The increase in profits tax was widely expected, and several business groups had earlier given their backing to a rise as high as 2 per cent.