China is planning a shake-up of its tax laws which could put a stop to preferential treatment for foreign firms as early as next year, according to China's state-owned media.

Under the reform, the tax regimes for domestic and foreign firms would be aligned, the Economic Daily newspaper reported on Tuesday.

"Income taxes for foreign-funded and domestic firms will be unified next year," Chinese finance minister Xiang Huaicheng told the paper.

Generous tax breaks have attracted record levels of foreign direct investment into China in recent years, helping to fuel strong economic growth.

Many foreign-owned firms are taxed at a preferential rate of just 15%, compared with about 33% for Chinese-owned companies.

Adapting to WTO

But pressure to scrap the two-tier tax system has been building up since China joined the World Trade Organisation late last year.

Introducing a unified tax regime would provide a boost to Chinese-owned companies, making it easier for them to compete in global markets.

It would also increase the Chinese government's tax revenues, helping it to bring its spiralling budget deficit under control.

Economists have said the Chinese authorities are likely to set a unified tax rate of between 25 and 30%.

But proposals for a common tax regime are likely to face opposition from regional leaders, who remain keen to attract foreign investment.