Hong Kong leader Donald Tsang is expected to announce cuts in taxes on profits and salaries in his annual policy address next week, a report said Friday.

Citing unnamed government sources, the South China Morning Post reported the rate of tax on both profits and salaries will likely be reduced to 15 percent. The tax on profits is currently 17.5 percent and on salaries is 16 percent.

The newspaper said the move would be taken to fulfil a promise Tsang made during his re-election campaign earlier this year.

The government can afford to trim taxes because it is likely to have a budget surplus estimated at 55 billion Hong Kong dollars (7.05 billion USD) this year, the report said.

In the first five months of the fiscal year ending March 2008, the surplus was 1.2 billion dollars. A year before, the government had a deficit of 21.1 billion dollars.

The booming stock market, which has reached record highs in the last two months, and brisk land sales have boosted the government's revenue, the newspaper said.

The tax cuts will likely be introduced gradually.

The daily said Tsang is expected to lay out a timetable for the tax cuts during his policy address on Wednesday but details will be announced in the budget address next year.

The newspaper report has boosted in part the Hong Kong stock market on Friday which ended a two-day decline to open at 1.3 percent higher at 27,329.65.