Energy

Tue, 03/09/2010 - 17:22

In this month's energy guest column, Li Ting, a coal industry analyst with the Distribution Productivity Promotion Center of China Commerce, discusses the possibility that the government may make changes to the current resource tax on coal production. Translated from the original Chinese by Victor Wang.

Li Ting, coal industry analyst with the Distribution Productivity Promotion Center of China Commerce

Shanghai. March 9. INTERFAX-CHINA - China may take the opportunity after the National People's Congress ends on March 14 to reform the resource tax on coal production.

The tax is levied on the production of natural resources. It is an important fiscal tool that encourages the conservation of non-renewable natural resources while curbing the excessive profits of the firms that control them.

Currently, China's resource tax on coal production is a specific duty instead of an ad valorem duty, meaning that the tax amount is determined by the quantity of coal a firm produces rather than its value. 

In most parts of China, the resource tax amounts to about RMB 3 ($0.43) per ton of thermal coal and RMB 8 ($1.17) per ton of coking coal.

Although coal prices have gone up substantially in recent years, the rate of the resource tax on coal production has remain unchanged, leading some of the public to complain that the industry isn't paying its fair share.

In 2007 and 2008, when coal prices climbed to record levels, the Chinese government considered reforming the resource tax on coal production to an ad valorem duty to check the excessive profitability of coal producers. However, concerns about inflation delayed the government from launching the reforms.

Nevertheless, there may be another opportunity to reform the tax following the National People's Congress this month.

First of all, the profit margins of Chinese coal producers remain well above those of downstream heavy energy-consuming sectors like steel, cement, and fertilizer production. According to the National Bureau of Statistics, the coal production industry had an average profit margin of 16.3 percent over the first 11 months of 2009, while the downstream industries mentioned above all reported profit margins below 10 percent.

Secondly, China will have sufficient coal supplies for the first half of 2010. On the one hand, the Chinese government's efforts to curb excessive production capacity in the heavy energy-consuming steel and cement sectors will reduce coal demand. Yet on the other, domestic coal production capacity will grow in the first half of this year, particularly in Shanxi Province. Considering the abundance of coal supplies on the overseas markets, altering the resource tax would not lead to domestic coal shortages.

Lastly, a proposal to change the resource tax on coal production from a specific duty to an ad valorem duty is likely to be on the agenda of the National People's Congress in Beijing. The discussion will help both the regulators and the affected parties better understand the necessity and impact of the proposed tax reform.

The above is a personal opinion piece by the author. Its publication in no way implies that Interfax shares the views expressed in the article.