REFORM TO BE EXPANDED: A worker checks production facilities at Dalian Petrochemical Corp. China is to expand the resource tax reform to the whole country (MA YIDONG)

Conducive to saving energy

On September 7 the State Council issued the comprehensive working scheme on saving energy and reducing emissions during the 12th Five-Year Plan (2011-15) period, providing pricing, fiscal, taxation and financial policies to realize the goal of saving energy and reducing emissions. As for tax policies, the scheme suggests actively accelerating reform of the resource tax, adjusting the resource tax ratio on oil and gas producers by value instead of by volume and appropriately raising the tax burden on resource products.

"There are many problems in the existing price formation mechanism, and the cheap resource products do not reflect market demand and the scarcity of resources. This makes the resource tax reform particularly important," Zhou said.

Most resource enterprises rely on the amount of mineral resources they own and the low labor cost to realize business growth.

According to the comprehensive working scheme on saving energy and reducing emissions during the 12th Five-Year Plan period, by 2015 the energy consumption per 10,000 yuan ($1,464) will be reduced to 0.869 ton of standard coal, a decline of 16 percent from the 1.034 tons of standard coal in 2010 and 32 percent from the 1.276 tons of standard coal in 2005. From 2011 to 2015, a total of 670 million tons of standard coal will be saved.

Zhou said to levy the resource tax by value means in the future resource taxes on some resource products will be linked to product prices, guiding producers of mineral products to rationally exploit and save resources with market regulation mechanisms.

Covering all resources

People are most concerned about whether the resource tax reform can cover all resource products. Today, the Chinese Government only carries out reform on crude oil and natural gas but not on coal, rare earth, water and iron ore. Bao Qing, researcher at Donghai Securities Co. Ltd., said the government should make a clear roadmap and timetable as soon as possible to strengthen public confidence on the resource tax reform.

According to Bao, in the long run, resource tax reform will help save energy, improve the utilization ratio of resources and alleviate "investment hunger" in China. However, in the mid and short run, resource tax reform will face three problems: steps of the reform, implementing the reform and the timing of reform.

Bao said the resource tax reform may go forward with both promoting and obstructing factors. Local governments will probably be an important force to push the reform, while resistance from enterprises may not be too strong. The Central Government will promote the reform step by step in accordance with the country's actual conditions. "From the ideas we learn from the resource tax reform on oil and natural gas, we believe future reform on coal will likely start from west China, so will the reform on non-ferrous metals and other resources," Bao said.

He said by estimating the coefficient of input and output of different industries, we can further analyze how the costs of the resource tax reform will be transmitted to the industrial chains and judge how the reform will affect the climate of different industries in the national economy. This is still under research and observation.

Bao and his team have been judging the timing for the government to promote the resource tax reform, since this helps to judge the tempo of investment.

According to their judgment, the government, when considering expanding the reform, is now concerned about inflation and the impact of profitability on downstream industries. Bao believed the timing is not right to fully implement the reform, and a proper choice is to expand the reform on oil and natural gas from the first 12 provinces and autonomous regions in west China to the whole country and then select an appropriate time to carry out the reform on other resource products.

Different voices

Some scholars have expressed different views on China's reform of the resource tax. Wang Weihan, Secretary-General of the Research Center for Energy Economy affiliated to the University of International Business and Economics, said facing problems such as undervaluation of resource values and loss of state assets, what the Chinese Government needs may not be collecting the resource tax, but to demand full realization of property proceeds from the exploiters of resources because it is the owner of the resources.

In China, the resource tax is a kind of local tax. This actually changes a property owned by the state into the property of local governments.

"China can learn from the U.S. practice. Besides, the state of Alaska, all other states collect 50 percent of returns from oil and natural gas exploitation in the United States and the other 50 percent is collected by the federal government, so that property returns are justifiably distributed between the central and local governments," said Wang.

Progress of Resource Tax Reform

- In 1984, China began to collect a resource tax by volume on crude oil, natural gas, coal and iron ore, while other mineral products were exempted from tax.

- In 1994, China expanded the coverage of the resource tax, but more than 100 varieties of non-metal raw ores were not incorporated in the resource tax mechanism.

- In June 2010, a resource tax reform was carried out on a trial basis in Xinjiang, adjusting resource tax on oil and natural gas by value instead of by volume. In December 2010, the reform was expanded to 12 provinces and autonomous regions in west China.