Hong Kong's government is to cut personal and corporate income tax rates by one percentage point to maintain its fiscal advantage over competing financial centres Singapore and Shanghai.

Chief Executive Donald Tsang said, in his annual policy address, that taxes on salaries and company profits would be cut to 15 per cent and 16.5 per cent respectively in the financial year ending March 2009.

The move will widen the gap with Singapore, which in February announced a cut in its corporate tax rate to 18 per cent.

Mr Tsang, who won a five-year mandate in March after pledging to cut taxes to 15 per cent, said: “The rise of our country brings new opportunities,'' Tsang said, reiterating plans to promote integration of the city's financial system with the mainland. “We will consider further profits tax relief if our economy remains robust and our public finances stay sound.''

The finance industry employs more than 179,500 people, or 5.4 per cent of the working population, and Hong Kong's combined fund management business amounted to HK$6,154 billion ($793.4 billion) at the end of 2006, 36 per cent higher than the HK$4,526 billion in 2005. Compared to 2004, the combined fund management business registered a two-year growth of 70 per cent.

Shanghai, home to China's biggest stock and futures exchanges as well as its foreign exchange and interbank bond markets, has been challenging Hong Kong in fund raising as Chinese companies sell stock at home.

Singapore's financial services industry expanded 17 per cent last quarter from a year earlier, and investments held by portfolio managers in the city-state rose 24 per cent to almost S$891 billion ($594 billion) in 2006.