ong Kong could see major reforms to its tax structure within the next two years, Financial Secretary Donald Tsang told the Hong Kong business community at a joint chamber luncheon on March 20.

Despite widespread speculation that he would use the 2000-2001 Budget to widen the tax base, the Financial Secretary pointed out that his decision not to change the tax structure does not mean that he is stepping back from the idea. It is simply a question of how best to do it, he said.

"There are some that say we have missed a golden opportunity to bring in much-needed reform now. However, new tax arrangements are something that cannot be introduced overnight,"he said.

A government task force and an independent committee will be set up to study the feasibility of broadening Hong Kong's tax base. The groups will be charged with reviewing the existing tax system to determine if restructuring is necessary and if so what would be the best course of action.

"We have a long way to go and whatever is decided may take an extra year or two to implement. But we must get moving otherwise the momentum will be lost,"he said.

Mr Tsang said he personally believes that with 60 per cent of the popuation not pay any salaries tax something must be done to widen the net. But he stressed that by airing his personal views, he was not trying to influence the groups.

Whatever the outcome, Mr Tsang assured the business community that Hong Kong is a low tax territory, and that its tax system must be regionally and internationally competitive, and that it must be low and it must be simple.

The Financial Secretary said his decision not to change the tax structure was due to the strong recovery of the economy towards the end of 1999 which produced a real growth rate of 2.9 per cent for the year as a whole.

Also, a rise in government revenue sources from the Exchange and Tracker funds wiped a large chunk -- HK$44 billion -- off the government's projected deficit, he said.

"Of course, we recognise that this is probably a one-off, or short-term, gain. But with such a windfall, I think we would have been pilloried by our legislators and the community had we attempted to introduce some form of new taxation. And higher taxes ran the risk that we could well have stalled our nascent recovery,"he said.

Mr Tsang also touched upon initiatives the government is taking to improve competitiveness in the financial services sector. These include a multi-currency capital market and clearing system, starting with a US-dollar denominated market, which should be fully operational by the end of the year. The system will enable a wide range of financial transactions conducted in US-dollars to be settled in Hong Kong.

"This will make us the leading investment window in Asia and reinforce our monetary stability,"he said.