I need to increase the reference count and this is the part I don't know how to do in XS

As BrowserUK indicated, you can use SvREFCNT_inc/SvREFCNT_dec (see perldoc perlapi) to increment/decrement the reference count in XS, or you can write perl wrappers for those XS functions if you want to do the manipulating from perl space:

use strict;
use warnings;
use Devel::Peek;

use Inline C => Config =>
 CLEAN_AFTER_BUILD => 0,
 BUILD_NOISY => 1;

use Inline C => <<'EOC';


void incref(SV * sv) {
 SvREFCNT_inc(sv);
}

void decref (SV * sv) {
 SvREFCNT_dec(sv);
}

EOC

my $str = 'hello world';
Dump $str;
print "\n";

incref $str;
Dump $str;
print "\n";

decref $str;
Dump $str;
[download]

The REFCNT of those 3 dumps is 1, 2, and 1 respectively.

I think I am better off refactoring parts of the XS code to perl and have the perl interpreter manage the reference counting

That wouldn't be my first choice, but it's certainly an option - especially if it's proving difficult to handle the reference counting correctly.

Cheers,
Rob