A VAT Article...China Gears up for Resource Tax Reform
By Interfax-China
21 Dec 2007 at 09:08 AM GMT-05:00
BEIJING (Interfax-China) -- China plans to reform the current resource tax system to better reflect the price of resources instead of their quantity, in order to compensate better local governments for resource depletion, a high-level Ministry of Finance official, said at the State Finance Work Conference held in Beijing on Wednesday.
The new tax system developed by the MoF will initially levy a 5% tax on crude oil based on its price and eventually plans to raise the tax to 10% at a later date.
Various resources, which will be announced with the formal release of the new tax system, will remain taxed on the basis of quantity, but at a higher tax level. In addition, the new resource tax reform will also cover mineral water and geothermal resources, Zhu Zhigang, China's deputy Minister of Finance, said.
However, analysts told Interfax today that despite the noticeable change in the proposed resource tax, profits from the mineral resource sector and the oil and chemical sector will not be severely affected in the long term.
"The current resource tax rate on mineral resources, levied on basis of quantity, amounts to approximately 2.5% of sales prices, and even if this new resource tax doubles the current tax rate to 5%, this is still below the average global resource tax rate of between 10% and 12%," an Industrial Securities analyst, Wang Qiang, said.
"Moreover, most copper smelters that own their copper mines have profit margins as high as 70%. If we take Shanghai-listed Jiangxi Copper Industry Co. Ltd. [SHA: 600362] as an example, the rise in resource tax will only result in a between 3% and 4% decrease in its net profit," Wang said.
China Merchant Securities oil and chemical analyst, Qiu Xiaofeng, said that "the current resource tax rate on oil ranges between RMB 14 ($1.90) and RMB 30 ($4.08) per tonne, which amounts to less than 0.5% of the benchmark oil price, while this new resource tax will probably equal 5% of the price."
"In the short term, oil producers like PetroChina [NYSE: PTR] and Sinopec [NYSE: SHI] will definitely feel the pinch from the raised resource tax. PetroChina, for example, is estimated to see net profit drop by 7% or 8% from the resource tax reform. However, in the long run, we believe that the state will allocate some of the revenue from the increased resource tax to downstream sectors, requiring them to pay higher prices for oil products and increasing the profitability of oil refining," Qiu said.
China's Minister of Finance, Xie Xuren, said at Wednesday's meeting that the government will overhaul both the current VAT export tax rebate and export tax system for energy-intensive and highly-polluting resources next year, in order to curb exports of these products and encourage the export of high value-added products.
China also intends to adopt more prudent fiscal and monetary policies next year, in order to cool any possible overheated economic growth and inflation, Xie said.