China's Resource Tax Plans Tabled

A proposal to introduce a tax on the consumption of coal, oil and gas was tabled at the annual meeting of the National Energy Administration (NEA) on Jan 10, 2012.

The meeting also confirmed that recent changes to tax the production of oil and gas based on value rather than volume will be extended to coal production, although no timescale was given, according to a report by China Business News. More bands of taxation will also be introduced to encourage producers to maximize the extraction of resources.

Last November saw the introduction of a value-based tax on the production of oil and gas, set at 5 percent. Based on current prices, the move effectively increased the tax burden on oil producers by as much as a factor of 20.

However, coal production is still taxed based on volume. Industry watchers have pointed out making the switch to a value-based tax for the sector is trickier, as the country depends on coal for as much as 80 percent of its energy production, and prices have been climbing sharply.

The reforms on both the production and consumption side are part of the government's plan to increase efficiency in the use of resources and energy production. At present, no consumption tax is charged.

"Such a consumption tax is long overdue," Lin Boqiang, the director of the China Center for Energy Economics Research at Xiamen University, told the Global Times. "The resource production tax changes have already begun to take effect, and now it's time to tax consumption. Both will serve to increase the cost of energy products and demonstrate the government's determination to increase energy efficiency throughout the 12th Five-Year Plan period."