11 July 2016
Resource Tax Reform Rolls Out in Full on 1 July
China began to expand the resource tax reform across the board on 1 July. Besides introducing ad valorem tax and cleaning up the charge funds, water resource tax will be levied on a trial basis, a break from the current practice that only levies resource tax on minerals and salt, thus further improving the tax system and straightening out the relationship between resource tax and fees.
According to Wang Jianfan, director of the Tax Policy Department at the Ministry of Finance, the resource tax reform will consider the actual conditions of enterprises as well as their tolerance capacity when determining the tax assessment basis and tax rate to increase tax elasticity. Because conditions differ between enterprises, there is no way to guarantee that the tax burden of individual enterprises will not increase. For example, in the tax-for-fee reform for water resources, the tax rate will be suitably raised for water-intensive industry, above-quota water usage and using underground water in regions with exhausted underground water resources. This is the regulatory role of taxation.
As an important component of local taxation, the resource tax has become a main source of tax revenue in the resource-rich regions. For example, Xinjiang was able to increase its tax revenue by Rmb1.769 billon (or 2.31 times) as a result of its oil-gas resource tax reform in 2010. Coal resource tax revenue in all parts of the country also increased by Rmb18.6 billion (or 1.26 times) in 2015. Among them, Shanxi's coal resource tax increased by nearly Rmb8.9 billion (or more than 2 times), thus effectively easing the tax revenue burden of this major coal-producing province. According to the State Administration of Taxation, the oil-gas resource tax reform increased tax revenue by more than Rmb90 billion in oil-gas producing areas across the country between 2011 and 2015.
In this reform, mineral resource compensations that used to be split 50:50 between the central and local coffers will be merged with the resource tax and will all go to the local coffers.
Before the reform, coal resource tax was levied based on quantity and the same tax standard applied to products irrespective of quality. Tax is levied based on price after the reform. More tax will be levied in places with good endowment conditions and high-priced coal and less will be levied in places with poor endowment conditions and low-priced coal. The price leverage will reduce the possibility of abandoning the mining of poor-quality coal.
Meanwhile, preferential tax policies will be implemented to encourage enterprises to make more effective use of resources and protect the ecological environment in the mining areas. China reduced the tax burdens of mining enterprises by nearly Rmb2.8 billion in 2015. For example, the Taoyuan Coal Mine of the Wanbei Coal-Electricity Group reduced its tax payment by Rmb700,000 in 2015 after switching to cut-and-fill mining. The mine not only raised its recovery rate but also protected 710 mu of arable land and made effective use of 60,000 tons of fly ash.
The differentiated tax rates for water resource tax will force enterprises to rethink their development strategies. The water resource tax reform group reckoned that the silica sand industry can save 1.24 tons of water in producing each ton of washed sand after its successful transformation, thus saving considerable money in annual expenses.