China unveils plans for resource tax overhaul
(Asia Pulse)
Updated: 2005-12-08 14:34

But the practice has not been universally applied. Most places have followed the practice of administrative approval, allowing mineral developers to use the mineral resources free of charge, which was prevailing in the planned economy period. Statistics show that of the 150,000 mines, only 20,000 have been obtained through market mechanism.

China's mineral resources tax averaged a low 1.18 per cent in comparison to the two per cent to eight per cent in other countries.

The taxes on petroleum, natural gas, gold and other minerals were even lower, with 1 per cent on petroleum and natural gas, and 2 per cent on gold (far lower than the 12.5 per cent in the United States, 10 per cent in Australia).

If the cost of resources and environment is entered into the cost of coal production, the cost of coal per ton should increase by 50 yuan. But the tax on coal mining is current only about 3 yuan per ton.

These, plus the control by the state of the prices of many minerals, have serious distorted the resource price system, which cannot reflect the supply and demand and rarity.

Mining enterprises do not bear the social and environmental cost. China's water price is only one third to one tenth of other countries; the fuel oil tax is only one tenth of the United States and the market oil price is less than half that of some European countries. The coke price is 50 per cent cheaper than the international market price.

Despite the low tax rates, many companies have avoided paying tax. In 2002, 1601 major mining enterprises owed 3.1 billion yuan in tax on mineral resources, while in 2003, the tax paid made up only 48.3 per cent of the payable amount.

The seriously flawed mineral tax regime has led to serious consequences, including indiscriminate and disorderly mining, deterioration of the environment in most mining areas, serious waste of minerals, low resource utilization rate and lost of control on the international market.

In making resources cheap, China has been subsidizing other countries using China's resources, such as coke. Other countries can obtain coke cheap from China and what is left in China is pollution and accidents.

But BOC is aware of the difficulties in pushing the mineral resource tax reform. It predicts that mining enterprises headed by monopoly giants might obstruct the reform on all kinds of pretexts. Local government departments of immediate interests would grumble for losing the interests after the fee and tax collection is standardized. After the reform, many mining enterprises may shift the tax burdens on consumers, especially the disadvantageous groups.