The government has proposed a further easing of rules governing profit tax exemption for offshore funds. In a paper presented to legislators yesterday for discussion next week, the government said it would now accept the earnings of offshore funds trading in derivatives, foreign exchange gains and asset management as exempt from the 17.5 per cent profit tax. Initially, only securities trading income was not taxable. Fund managers had complained the original proposals issued in January were too restrictive. The government, trying to promote Hong Kong as an international fund management centre, will also expand the exemption to cover trading by all Hong Kong brokers and investment advisers. In addition, it will lift the restriction that they must not hold any shares in the fund and must not be an associate of investors. The government, however, has not yet decided if it will relax the tax avoidance safeguard requiring a resident holding a 30 per cent stake in an offshore fund to pay tax. The market wants the threshold lifted to 50 per cent and the government says it will leave it to legislators to make a decision.