China to Impose Rare Earth Tax

China is looking to allocate a value-added tax (VAT) permit to rare earth companies in a bid to regulate overproduction of the mineral and to collect revenue. By issuing the special VAT slip, the government will have full control over which companies are exporting rare earths and what quantities they can export.

The Ministry of Industry and Information Technology in China is also considering a national inventory reserve of rare earths and will look at strategic buying and selling, where producers buy up surplus supply when prices fall and sell when prices rise.

China exports more rare earths than any other country in the world, accounting for more than 90% of the world's demand. This commanding position has been achieved despite the fact that the Asian major currently has only about 30% of global rare earth reserves.

Though the percentage of VAT is, as yet, unclear, traders say it is bound to lift prices of rare earths out of China. Once instituted, the tax would be almost impossible to avoid. The government's move would also mean strict control and supervision over the whole process, from production to sale.

Currently, the tax rate of mined light rare earths is 60 yuan per tonne, while that of medium and heavy rare earths is set at 30 yuan per tonne.

The new tax will allow plants with a production capacity of 1,000 million tonnes of light rare earth concentrates, to only sell around 450 to 500 million tonnes of rare earth oxides, that can be produced from the concentrates. If the company sells more, it would amount to underreporting of concentrates or obtaining output from elsewhere and selling illegally.

Though China has enforced a 'mandatory production plan' for rare earths since

2007, the new tax would help the government tighten control over exports and production of the valuable metals.

Jia Yinsong, the Director of Rare Earths Office of the Ministry of Industry and Information Technology has been quoted by news reports as saying that according to the 2011 quota, the export volume for rare earths should have been 18,000 tonnes, but the actual amount was around 36,000 tonnes. This would mean that nearly half of the rare earths production was smuggled.