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(Dec 22, 2011) Effective on November 1, 2011, China's revised Tentative Regulations on Resource Tax noticeably raised the resource tax levied on the exploitation of crude oil and natural gas in China. The Regulations were revised by State Council Order No. 605 on September 30, 2011. (Text of the revised Regulations [in Chinese], Central People's Government of the People's Republic of China website.)

The old Tentative Regulations on Resource Tax were promulgated by the State Council in 1993. Effective from January 1, 1994, the old Regulations imposed resource taxes on entities and individuals that exploited minerals or produced salt within the territory of the People's Republic of China. (Text of the 1993 Regulations [in Chinese] (Dec. 25, 1993), art.1.) The amount of the old resource tax payable was calculated based on the volume of output. Crude oil was taxed at a rate of RMB8 – RMB30 (about US$1.26 – $4.72) per ton; natural gas was taxed at a rate of RMB2 – RMB15 (about US$0.31 – $2.36) per thousand cubic meters. (Id., "Appendix: Table of Taxable Items and Tax Rates of Resources Tax.")

The government has been contemplating the reform of the resource tax for several years and tried it experimentally in Xinjiang in 2010. On June 1, 2010, the Ministry of Finance and the State Administration of Taxation jointly issued a notice to launch the resource tax reform in Xinjiang. According to the notice, a 5% resource tax was to be levied on the exploitation of crude oil and natural gas in Xinjiang, which was calculated based on the sales amount, but not on the volume of output. (Text of the notice [in Chinese], Cai Shui [2010] No. 54, MOF official website.)

The revised Regulations expand the reform nationwide, providing that the resource tax payable on crude oil and natural gas will be calculated by the ad valorem method, which will be 5-10% of the sales amount. (Revised Regulation, "Appendix: Table of Taxable Items and Tax Rates of Resources Tax.") Resource taxes are also levied on the exploitation of coal, other raw non-metal mineral ore, raw ferrous metal mineral ore, raw nonferrous metal mineral ore, and salt. The amount of taxes payable will still be based on the specific duty method, computed by multiplying the specific tax rate applicable to the taxpayer by the volume of output. (Id.) Among the rates for coal, that for coking coal has been increased, from RMB0.3-RMB5 per ton, to RMB8-RMB20 per ton; the rate for rare-earth ores has also been raised to RMB0.4-RMB60 per ton. (Id.)

According to the revised Regulations, the resource tax payable will be paid to the tax authority of the place where the taxable product is exploited or produced. (Id., art. 12.) Observers pointed out that the new tax will help funnel cash to financially strapped local Chinese governments. (Aaron Back & Wayne Ma, China Expands Resource Tax to Nation, THE WALL STREET JOURNAL (Oct. 10, 2011) [subscription necessary to view complete article].) The move is also believed to mark a new step in China's drive to move to a cleaner, more efficient growth model that is less dependent on resource-intensive industry. (Id.)

Author: Laney Zhang More by this author
Topic: Taxation More on this topic
Jurisdiction: China More about this jurisdiction

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Last updated: 12/22/2011