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Markets

China resource tax goes nationwide

BEIJING : China will extend a resource tax on domestic sales of crude oil and natural gas from some regions to the who
10 Oct 2011

chinasdaBEIJING: China will extend a resource tax on domestic sales of crude oil and natural gas from some regions to the whole country and expand the list of taxable resources to coking coal and rare earths from November 1, the government said on Monday.

The move, billed as a way of conserving resources and limiting environmental damage, is part of a long-awaited tax reform that would enrich the coffers of local governments but slash the earnings of resource companies, such as PetroChina Co, China National Petroleum Corp and Baotou Steel Rare Earths by billions of dollars each year.

The sales of crude oil and natural gas sales nationwide would be subject for a tax of between 5-10 percent, China's State Council said on Monday.

It would also impose a sales tax of 0.40-60 yuan per tonne on rare earth ores and between 8-20 yuan a tonne on coking coal.

The government did not give details on why there was such a wide range in the tax levied on rare earths but analysts said heavy rare earths, which are more scarce, would likely face heavier taxes.

Taxes on other types of coal remained unchanged at 0.30-5.00 yuan per tonne.

China's resource tax at present is calculated based on volume of production, instead of sales value, which has denied local governments from reaping the benefits of the surge in energy and commodities prices, the government said in a statement.

"Companies have enjoyed big profit margins on the sales of coking coal in China, but it is a scarce resource in China that needs to be protected," the government said.

"Rare earths is also an important strategic resources and the its over-exploitation has caused environmental destruction as well as affected the security of future supplies."

China unveiled its first resources tax on oil and natural gas at a rate of 5 percent in Xinjiang on June 1 last year as a way of retaining some of the region's mineral wealth in local hands. It then extended the tax to 11 other provinces in December.

Moody's senior analyst Kai Hu said in a September note that the resource tax could cost PetroChina, Sinopec and CNPC approximately a combined 44 billion yuan ($6.89 billion) a year.

Copyright Reuters, 2011