China implements a tax on domestic sales of oil and gas
In a bid to conserve energy and resources, limit environmental damage and boost revenues of local governments, China has started implementing an extended regional sales-based tax on domestic sales of crude oil and natural gas.
In the near term, the tax will also be slapped on coking coal and rare earth minerals.
China had adopted the price-based tax calculation mechanism on sales of oil and natural gas, and discarded the old production volume-based tax mechanism. The oil and gas tax, ranging from 5 to 10 % of sales, will be levied on both domestic producers and joint ventures with overseas companies.
Analysts, however, said imposing a 10 % rate is heavy and damaging for oil and gas producers as it would slash the profits of resource companies, such as PetroChina, China National Petroleum Corp. and Baotou Steel Rare Earths by billions of dollars annually. It could also possibly put in peril the stability of the companies in the long run.
The volume-based tax mechanism will continue for coal and metal, at 8 to 20 yuan on every ton of coking coal sold and 0.3 to 5 yuan a ton for other coal grades.
Iron ore sales are taxed 2 to 30 yuan a ton, rare-earth minerals at 0.4 to 60 yuan a ton, and nonferrous metals ores at 0.4 to 30 yuan a ton.
Funds from the extended national sales tax will help subsidize at least 23 projects in western China at a cost of $ 107 bn. The projects include the construction of roads and railways, wind farms and a nuclear power plant.
The revamped measure is actually part of a long-awaited tax reform that would enrich the coffers of local governments.
Resource tax reforms were first delayed in 2007 over concerns it would add inflationary pressure to an overheating economy.
The second delay was 2008 caused by anxieties of hurting companies during the global financial crisis.
In June 2010, during a trial run, China rolled out a 5 % tax on oil and gas sales in Xinjiang to help fund development of the north-western province. By December, it was spread to include 11 other provinces.