2010-11-01 14:00

A 3 to 5 percent tax on sales of coal is likely to replace the current tax on output as China expands its resource tax reform program, the Economic Information, a daily run by the official Xinhua News Agency, reported Monday, citing unnamed sources.

Experts interviewed by the newspaper said it is a trend for the government to include coal in the new resource tax mechanism to boost local government coffers, and conditions have matured for expanding the tax reform to more regions.

Currently, a tax of 3- 8 yuan ($0.45-1.19) per ton of output is levied on coal producers, roughly equal to 1 percent of their sales revenue. Market expectation about including coal into the resource tax reform became stronger after a proposal for China's economic and social development in the next five years (2011-15) was adopted at a plenary session of the Central Committee of the Communist Party of China last month.

The proposal said that China will continue to push forward its resource tax reform and sort out price relations of resource products including coal, electricity, oil, gas, water and minerals.

In June, the Xinjiang Uygur autonomous region piloted a resource tax reform program by introducing a new sales tax on producers of crude oil and natural gas.

The 5 percent tax, on price instead of volume, as was the case before, was aimed at increasing the resource-rich region's government revenue, and is part of a support package unveiled at a central work conference held in Beijing in May, Xinhua reported on June 2.

An unidentified executive of Shenhua Group Corp Ltd, China's largest coal producer, told the Economic Information that the company was keeping a close watch on the latest development in resource tax reform.

A 3-5 percent sales tax would have "pretty great implications" for the company's production, "especially in terms of costs," the executive said.

An industry insider predicted that coal producers would raise prices to shift the extra tax burden to consumers and the tax reform could also lead to a consolidation of the whole industry as some weaker coal enterprises could have difficulty maintaining their profit margin.