Resource Tax Reform will Boost Local Government Revenue

飞雪寒冰

China will reform its resource tax system as soon as possible in a bid to raise fiscal revenue collected by local governments and improve the efficiency of resource allocation, a Ministry of Finance official said.

Wang Jun, the vice finance minister, said on June 11 the reforms will benefit China's western provinces, which are home to much of the country's resources.

China's current resource tax regulations were introduced in 1994 and are limited to salt and certain kinds of minerals, including coal. Coal is taxed according to production volume, regardless of price, with the rate varying between 2.5 and 3.6 yuan per ton.

Information obtained by Caijing from the Ministry of Finance and the State Administration of Taxation shows that resources tax will be broadened to include a wider range of resources such as water, forest and rangeland. The tax will be levied at a higher rate and will be based on price rather than production volume

飞雪寒冰

Chen Mingyu, a taxation and consulting partner at auditor Ernst & Young, told Caijing that resource tax reform will certainly increase prices of certain kinds of industrial products.

Caijing reported earlier that the tax will act as a disincentive for investors looking to finance power projects, and may lead to alternative energy projects receiving higher funding at the expense of coal-fired plants.

As resources tax plays a tiny role in China's overall taxation system, the increased tax revenue won't significantly increase the central government's fiscal income, Chen said.

Local governments currently receive revenue from resources taxes, except for those levied on offshore oil resources. According to the Ministry of Finance, annual revenue collected from resources tax currently stands at 30 billion yuan, or just 0.5 percent of total tax revenue.

China's financial revenue declined for four successive months in 2009. Total revenue in the first four months decreased 9.9 percent year-on-year to just over 2 trillion yuan, or 31 percent of this year's fiscal budget.

The proposed reform is thought to be based on drafts submitted to the State Council in early 2007, but put on hold in early 2008 as it was feared that it would push up coal prices at a time when inflation was consistently above 7 percent.

飞雪寒冰

Liao Xiaojun, a deputy minister at the Finance Ministry, said March that the revisions would be introduced at an appropriate time, without giving a clear indication of what the timetable might be.

China Coal Energy Co. General Manager Wang An said April 20 that the government should delay implementing the reform to help coal miners cope with falling sales amid the economic slowdown. China's power consumption in the first five months was down 5 percent year-on-year, and fell 2.58 percent in May, the China Electricity Council said earlier.

However, China Shenhua Energy Co. (SSE: 601008; HKSE: 1088), the country's top coal miner, said June 12 that coal production jumped 19 percent in May from a year ago, while sales rose 11.2 percent. Rival China Coal Energy reported that May output rose 21.9 percent to 10.5 million tons, while sales fell 5.9 percent to 7.8 million tons. The figures suggest the coal industry may now be in a position to absorb the higher costs attached to the reformed resources tax.