19 September 2018

Govt gives and takes it all away

The State Council, China’s cabinet, is reportedly considering cutting miscellaneous charges on the coal mining industry and tightening output as well as imports. A public consultation is under way.

If adopted, these measures would speed up recovery in the sector. However, a higher resource tax, said to be in the pipeline, could offset any gains.

In the past, coal mining was a lucrative business and a source of steady tax revenue. Local governments, which levied all sorts of charges on the sector, saw it as something of a money-spinner.

That helped create a legacy of excessive taxation — as many as 200 types of fees and levies. A senior official of the National Energy Administration estimates that these charges account for up to 35 percent of the industry’s revenue.

With sluggish demand and overcapacity, coal miners are struggling to scrape enough money to stay in business, let alone cover these charges.   

In response to distress signals from the industry, Beijing is studying a clampdown on illegal levies and tighter restrictions on imports and output. It is expected to have these measures in place by the end of the year, coupled with tougher entry barriers for newcomers.

It’s too early to say how these will help the industry given a purported plan by Beijing to reform resource tax. The government wants to apply the tax to the value of coal output rather than volume. At present, resource tax on coal, which is based on volume, is a few yuan per metric ton, China Business News reported.

If the resource tax rate on coal is to follow the practice in the oil and gas sector — up to 10 percent of the transaction value — the levy will rise significantly.

For instance, the spot price of thermal coal is about 600 yuan (US$98.46) per ton. The new tax would work out to about 60 yuan per metric ton — not a small sum for a cash-strapped industry.

– Contact the writer at [email protected]



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