Tax reform to extend to coal sector

Plan seen as effort to support troubled industry

China plans to levy a resources tax on coal based on sales value instead of production volume, as well as scrapping arbitrary levies on coal miners starting from December 1, taxation and fiscal authorities said over the weekend.

The tax rates will be decided by provincial governments within a range of 2 and 10 percent, and will be submitted to central authorities for approval, the Ministry of Finance and the State Administration of Taxation said in a joint statement released on Saturday.

The two authorities also ordered local governments - especially North China's Shanxi Province, the country's second-largest coal production base after North China's Inner Mongolia - to cancel a series of administrative charges on coal miners.

Currently, coal firms need to pay both taxes and various charges, the statement said, adding that the reform aims to cut charges and reduce the overall burden for coal enterprises.

The coal resources tax is set at between 2 yuan ($0.33) and 8 yuan per ton at present, but under the new calculation method coal firms are likely to face heavier taxes, analysts said. Therefore, whether their burden will be relieved will depend on the cancellation of arbitrary levies.

"There are more than 100 kinds of taxes and charges on coal producers in Shanxi, and I believe the reform will help local coal miners reduce operational costs," Dai Bin, an industry analyst with commodity information provider JYD Online Co, told the Global Times on Sunday.

The Shanxi provincial government started to impose a coal sustainable development fund in 2007. The revenue of the fund was 12.9 billion yuan in 2013. In comparison, the province's total resources tax revenue was merely 1.55 billion yuan, according to data from the provincial fiscal authority.

The tax reform comes amid a downturn in the coal market, which has been faced with massive oversupply and falling coal prices in the last two years.

China's total coal inventory has been above 300 million tons for 34 consecutive months. And coal miners' storage has hit a record high of 110 million tons, according to information released at a media briefing held by the National Development and Reform Commission on Saturday.

"It's the right moment for Chinese authorities to expand the resources tax reform to the coal industry," Lin Boqiang, director of the China Center for Energy Economics Research at Xiamen University, told the Global Times on Sunday.

China implemented tax reforms for crude oil and natural gas in 2011. The statement said similar reforms will gradually be expanded to other resources such as water.

Lin said the delay of the tax reform in the coal industry was due to concerns that it would boost coal prices and add inflationary pressure to the economy.

"A large number of China's power plants are still coal-fueled, so coal miners are likely to transfer the added costs to downstream industries," he said. "(But) there is oversupply in the coal market, so the reform will have a limited impact on the nation's economy."

The reform, together with the State Council's decision to resume coal import tariffs from October 15, is seen as a stimulus package to boost the struggling coal industry, according to Dai.

More than 70 percent of coal enterprises in China have incurred losses this year, and nearly half have cut or delayed payment of workers' wages, Wang Xianzheng, head of the China National Coal Association, said in July.

The key to supporting the industry is curbing illegal, excessive and unsafe production, which amounts to several hundred million tons per year, officials said at the briefing held on Saturday.

China plans to shut down 800 to 1,000 small mines this year after closing 711 in 2013, data from the State Administration of Coal Mine Safety showed in July.