FOREIGN investors in China will still end up paying more taxes in spite of a new rebate formula designed to ensure their tax burden does not increase as a result of January's reforms, according to accountants Price Waterhouse. Under a so-called ''grandfather rule'', foreign-funded enterprises (FFEs) already operating on the mainland may seek a refund each year for five years if they pay more turnover taxes because of the changes. The rule also applies to deals made before January 1 but yet to come on-stream. Price Waterhouse says the new formula will lead to a cut in FFEs' profit margins because of the higher taxes, assuming buying and selling prices remain unchanged. ''If the buying and selling prices remain the same, the business will see a reduction in profit, and that can only be attributed to the tax reforms,'' said senior manager Peter Kung. In January, China rationalised and halved the number of taxes to 18 and brought in new turnover taxes in the most significant and wide-ranging tax overhaul since it came to power in 1949. The key turnover taxes are value added tax (VAT), consumption tax and business tax. The formula for the refund covers VAT and consumption tax but not the domestic business tax. VAT is normally 17 per cent. Consumption tax ranges from three to 45 per cent. Based on the formula, mainland tax authorities will compare the new VAT and consumption tax burden with the consolidated industrial and commercial tax (CICT) burden at the production level, and the special consumption tax under the old regime, before deciding on the refund. ''The point that business should be aware of is that this formula may not reflect the true cost of tax or the true difference in tax burden as a result of the reform,'' Mr Kung said. Under the new regime, investors have enjoyed refunds for VAT paid on domestic purchases and imports, but the new VAT - at 17 per cent, against five per cent under the CICT - means that, in absolute terms, they still have to pay more tax on sales turnover. ''Assuming turnover remains unchanged, it means a much larger portion of sales revenue is taxed. The net result is reduction in profit,'' he said. Beijing has warned investors against raising prices to make up for any possible loss of revenue as a result of the changes. Any price increases must be justified and approved.