A file photo shows a worker assembling Volkswagen cars in a factory in Shanghai. Foreign firms operating in China will not be "greatly affected" by a new law that will add five billion dollars to their collective tax bill, the Chinese finance minister said Thursday. [AFP]

BEIJING - Foreign firms operating in China will not be "greatly affected" by a new law that will add five billion dollars to their collective tax bill, the Chinese finance minister said Thursday.

Jin Renqing made the remark to lawmakers as he introduced a new corporate income tax law that will raise the tax rate for foreign companies to 25 percent from the current 15 percent.

"The current financial cost for foreign-funded companies will not be greatly affected," Jin said.

"Some foreign-funded enterprises may continue to enjoy preferential tax rates for hi-tech enterprises and small low-profit enterprises, and some others may enjoy transitional preferential tax policies," he said.

The 25 percent tax rate will also apply to local companies, which have so far paid 33 percent income tax, although many have benefited from a broad array of special arrangements and exemptions.

"If different tax policies continued to be implemented for domestic and foreign-funded enterprises, the former would definitely be put at a competitive disadvantage and the establishment of a unified market with standardised and fair competition would be obstructed," Jin said.

If the new tax law is implemented in 2008, the foreign-funded enterprises' income tax bill will increase 41 billion yuan (5.3 billion dollars), Jin added.

Collections from domestic firms will drop 134 billion yuan, resulting in a 93 billion yuan decline in fiscal revenue overall, he said.