China Mulls Expanding Resource Tax

One year after China introduced resource tax reforms in its westernmost region of Xinjiang, the government is considering expanding the program to other areas to save resources and restructure the country's economy.

On June 2, 2010, the Ministry of Finance announced that it would implement a resource tax on sales of crude oil and natural gas in the Xinjiang Uygur autonomous region on a trial basis.

The tax, which helps to save natural resources by raising consumption costs, has provided nearly 3.6 billion yuan in fiscal revenues for the Xinjiang government over the past year.

Guo Xiaolin, deputy head of the State Administration of Taxation, said on July 23, 2011 that a proposal for expanding the program nationwide has been submitted to the State Council, or China's Cabinet, for approval.

The expanded program would also include coal, the China Business News quoted a source close to the program as saying on July 19, 2011.

The timing for expanding the program has come under heated debate. Lin Boqiang, an energy professor at Xiamen University, said the tax will push up end-product prices, which could exacerbate the country's already-high inflation.

Liu Shangxi, deputy director of the Research Institute for Fiscal Science of the Ministry of Finance (MOF), argued that the timing of the program expansion should not be hinged on inflation data.

"It seems that when growth is sluggish, the tax becomes undesirable for fears of inhibiting growth. When the economy is good, the tax will push up inflation," Liu said.

The Chinese government has been cautious in advancing the program. The government currently controls the prices of major resources such as water, natural gas and coal.

Resource tax reforms have been postponed twice in recent years. They were first delayed in 2007 over concerns that they would help speed up price hikes and add inflationary pressure to an overheating economy. The second delay in 2008 was caused by fears of harming companies amid an economic slowdown resulting from the fallout of the global financial crisis.

Liu Shangxi said it is the right time to push the reforms, citing the fact that China has vast supplies of resources, which will prevent prices from rising too much.

His view was echoed by Jia Kang, director of the Research Institute for Fiscal Science of the MOF. Jia said inflation is expected to stabilize in the latter half of the year, which will provide an opportunity to push the reforms forward.

Although disagreements remain regarding the timing of the reforms, the government has decided to take gradual steps to allow resource prices to be determined by market forces.

The State Council said in a document issued last month that expanding the resource tax program is high on their agenda.

Sheng Laiyun, a spokesman for the National Bureau of Statistics (NBS), said last Wednesday at a press conference that price controls will remain the top priority for the latter half of the year.

However, he added that the government should seize the chance to allow prices to play their role in helping conserve natural resources.