Coal is loaded into trucks at a railway station in Jiujiang, Jiangxi province. China, the world's leading coal producer and consumer, has begun to levy resource tax on coal based on sales prices instead of production from Dec 1.[Provided to China Daily]

China, the world's leading coal producer and consumer, has begun to levy resource tax on coal based on sales prices instead of production from Dec 1, in a move to shore up the industry and improve the deteriorating environment.

The key to the reform, however, is to clear out charging fees involving coal. Chinese coal producers used to pay taxes as well as fees in various names.

The State Council decided to clear off these fees before implementing the resource tax reform on coal at an executive meeting on Sept 29.

The reform plan bans local governments from charging coal producers, according to a circular issued by the Ministry of Finance and the National Development and Reform Commission in October.

The circular stipulated that no more administrative charges involving coal, crude oil, and natural gas would be initiated by any local government, department or unit, except with permission from the State Council.

There must be accountability for any violations, warned the Ministry of Finance and the NDRC, which also urged local governments to report their cleanup campaign and the list of fees to be canceled.

China's major coal producing provinces have sped up efforts to meet the deadline. Shanxi province has cut 10.8 billion yuan ($1.77 billion) of fees coal producers have to pay since June.

A coal industry insider, who wanted to remain anonymous, said: "Coal producers' burdens could have been eased even more significantly if those 'invisible charges' are also canceled."

Shanxi, which accounts for one fourth of the country' s coal production, has seen sharp decrease in coal profit since the second half of 2012.

The per ton earning dropped to 2.6 yuan in the first three quarters of this year, compared to 45 yuan in 2013, and 139 yuan in 2011.

The heavily coal dependent province was alert to the worsening situation in the coal industry even before the national reform was launched. It worked out 20 measures last year in support of the industry, which cut 14.5 billion yuan of financial burdens for coal producers.

Analysts from a coal trade center in Taiyuan, the provincial capital, said coal prices remain flat in the fourth quarter, despite a modest increase of demand during the heating season due to sluggish economic growth.

More than 70 percent of the coal producers are in deficit, according to statistics from China National Coal Association.

Under the coal tax reform, the market is to play a decisive role in resource distribution, as required by the Third Plenary Session of the 18th Communist Party Central Committee held in November 2013.

"The old practice failed to reflect the scarcity of resources on the one hand, and left a loophole that allows some coal producers to conceal their real production and sales on the other," says Geng Mingzhai, head of the school of economics at Henan University.

The waste during production and damage to the environment were not taken into account in the collection of taxes.

"This situation can be changed in the new tax reform," says Geng.

The short-term benefit for coal producers is obvious. They need not pay dozens of kinds of fees charged in various names.

Kong Qingwen, chief of the bureau of finance in Wuhai, Inner Mongolian autonomous region, suggested local governments consider coal mining costs when imposing the tax, and try every means to help coal producers get through the tough time.

According to the reform plan, provincial governments are the ones to decide the tax rate within a specified range of 2 to 10 percent.