THE Government has been urged to reduce corporate profits tax by one percentage point in the 1994-95 Budget. Price Waterhouse partner Bill McKenzie said there was room for tax reductions despite expectations that the Government would budget for a $16.6 billion deficit. He called on the Government to reduce profits tax by one point to 16.5 per cent, saying: ''The major benefit from such a move would be to emphasise Hong Kong's determination to remain a low-tax territory.'' Mr McKenzie said the move would cost the Government about $1.8 billion in lost revenue, but that the Government would still have room to cut profits tax. ''All the indications are that the [forecast] 1993-94 deficit will not materialise and that there will be a further surplus to add to the opening reserves of $121 billion,'' he said. Mr McKenzie said the forecast deficit of around $4 billion would turn into a ''reasonable'' if not ''healthy'' surplus. He said increased revenues from stamp duties as a result of the booming stock and property markets would be the main factors behind the budget surplus, which would be further boosted by public expenditure projects running behind schedule. Mr McKenzie said he expected the Government to realign the salaries tax allowances and bands to take account of the effects of inflation, and argued for a reduction in the top rate from 25 per cent to 23 per cent. He said there had been calls for the salaries tax base to be broadened because seven per cent of taxpayers accounted for 55 per cent of total salaries tax revenue. One of the major issues facing the Government is whether to introduce a sales tax or goods and services tax. Mr McKenzie said salaries and profits taxes accounted for 45 per cent of total government revenue, leading to calls for a widening of the tax base through the introduction of a sales tax.