Financial Secretary Henry Tang should cut profits tax and salaries tax by bringing them to the level of 2002-03 financial year when he delivers the new budget tomorrow, said a local guild of accountants.

Given the envisaged lucrative surplus and consistently improving economy, the Association of Chartered Certified Accountants (ACCA) also suggested new allowances on medical insurance premiums and children's education.

"We expect the budget surplus for 2006-07 will top about HK$40 billion," said Fergus Wong, co-chairman of ACCA Hong Kong's Tax Sub-committee.

He also said the first thing that the government must do was to grant tax concessions to improve the business environment.

Noting that Singapore has recently reduced the profits tax rate to 18 percent, he suggested Hong Kong cut the profits tax rate (which is now 17.5 percent) to remain competitive and attract foreign investors to open regional headquarters in Hong Kong.

"Given the handsome surplus as predicted and the improving economy, the government should consider tax cuts, instead of one-off tax rebates, by reverting the tax rates to the 2002-03 level.

"The reduction of profits tax will attract more investors and increase income, and the working class will also enjoy salary increases," said Wong.

To attract talents and professional to stay in Hong Kong, he suggested various tax incentives.

For example, tax allowance for continuing education should be raised to HK$60,000 from HK$40,000 on top of allowance on professional subscription fees and 150 percent tax reduction for training expenses.