A deputy to the National People's Congress (NPC), China's top legislature, revealed Wednesday China might levy unified income tax for domestic, overseas-funded firms in 2008.

"This was in my most optimistic forecast," Cheng Faguang, also a member of the NPC Financial and Economic Committee, told Xinhua on the sidelines of the NPC's annual session.

The Law on Enterprises' Income Tax, which contains a chapter about the unification of the income tax, has been included in the legislation plan for 2005.

He pointed out that it caters to "both overseas experience and domestic situation" to scrap the current dual income tax system.

The actual income tax rate has remained at 14 percent for overseas-funded businesses, much lower than the 24 percent for domestic firms, since China formulated the preferential policy for overseas-funded enterprises in mid-1980s in a bid to lure foreign investment.

Cheng said the policy does not comply with the World Trade Organization (WTO) principles as a kind of discrimination against domestic firms and reduces China's tax revenues. China joined the WTO in 2001.

It increases the management cost of taxation administrations and enterprises and incurs tax dodgery and speculative activities at overseas-funded firms, he noted.

Cheng played down the impact of unified tax policies on foreign investment inflow.

Foreign investors came to China to take advantage of cheap labor force and land resources and preferential tax policies in the earlier years. However, as economic globalization and China's reform and opening-up drive deepened, the biggest attraction for them has shifted to investment climate and domestic demand, he said.

The outstanding amount of savings deposits at banks in China has surpassed 12 trillion yuan (1.45 trillion US dollars). Taking this into account, Cheng said there was no big gap between deposits and investment in China, so endeavors should be made to upgrade the quality of foreign funds.

China should encourage more foreign investment to flow into new and high-tech and highly value-added industries, as well as service industries and environmental protection sector to help upgrade its industrial structure, according to Cheng.

By the end of 2004, China has soaked in nearly 600 billion US dollars of overseas investment -- a bellwether among developing countries, according to the Ministry of Commerce.

Source: Xinhua