China's tax revenues are surging

Tax paid by foreign and domestic firms will be unified at 25% under the plans.

China has also unveiled a series of tax breaks to promote high-technology business, energy saving and environmental protection.

It came as the US treasury secretary urged China to open its financial markets faster to boost the economy.

'Diverse economy'

On a visit to Shanghai, Henry Paulson said that open markets were the best way to ensure prosperity.

"The risks for China are greater in moving too slowly than in moving too quickly towards transparent, liquid, stable markets," he said.

He urged China to move away from low-cost manufacturing, which has caused major environmental damage.

"Your long-term economic strength requires a diverse economy with high value-added manufacturing and world-class services, including financial services," Mr Paulson said.

Domestic firms currently pay income tax of 33%, while foreign-funded businesses pay between 15% and 24%.

Under the reforms, China's finance ministry expects domestic forms will pay a total of 134bn yuan ($17.1bn; �9bn) less in tax, while the overall bill for foreign firms' tax bills will rise by 41bn yuan.

A controversial 50% tax break for foreign firms that focus on exports - which the US had said was anti-competitive - will be scrapped.

High-technology firms will be taxed at 15% under the reforms, which are set to be approved later this month.

"The reform of unifying the two income tax laws will not only promote improvements in China's economic structure and upgrading of is industries but help create a legal environment conducive to fair competition," said Finance Minister Jin Renqing.

Controversial

However, analysts did not expect an eradication of the preferential tax regime to deter foreign investment into China.

"A lot of foreign companies no longer regard these kind of so-called tax incentives as a major driving mechanism for them to continue to invest in China and work in China," said Edward Tse of consultants Booz Allen Hamilton.