In the past months, China’s State Council has been revising the Provisional Regulations of the PRC on Resource Tax created in 1993. Beginning November 1^st 2011, China’s Resource Tax reform will become national. As of November 1^st, natural gas and crude oil will be taxed based on sales rather than the production amount; rare earths will also become subject to higher tax rates.

Expressed in China’s Twelfth Five-Year Plan, the country’s Resource Tax reform has already been delayed twice. The first delay was in 2007; this was due to concerns at the time that higher tax burdens may add to China’s inflationary pressures. The second delay was in 2008, at the start of the Global Financial Crisis, as the Chinese government wanted to avoid putting further economical strains on companies.

The Resource Tax reform is based upon the Interim Provisions on Resource Tax of the People’s Republic of China (State Council Decree No.139) implemented in 1993, where China’s State Council this past September issued an announcement of the new reforms to the regulations. The Chinese government emphasizes China’s environmental awareness and sustainability through the efforts of re-establishing the Resource Tax as the reform carries the aim of resource protection and environmental damage reduction.

One of the reforms to the Resource Tax stipulates a new calculation method for the taxation of crude oil and natural gas. Currently crude oil and natural gas is taxed based on production volume (RMB 8 to RMB 30 for each ton of crude oil and RMB 2 to RMB 15 for every cubic kilometer of natural gas). The reformed Resource Tax calculates the tax on crude oil and natural gas based on their sales value at a rate ranging between 5 percent and 10 percent; this is planned to begin as of November 1^st 2011.

Foreign-invested onshore and offshore oil and gas fields will also be subject to follow the new Resource Tax reform. Foreign energy companies, which engage in Sino-foreign cooperative onshore and offshore oil and gas exploration, will be liable for the payment of resource taxes, rather than royalties.

The reforms state that taxes on coal and non-ferrous metal ore will continue to be volume-based with tax rates on coking coal and rare earth ores increasing. Coking coal will be taxed at a rate of RMB 8 to RMB 20 per ton, while tax rates on other types of coal will remain the same at RMB 0.3 to RMB 5 per ton. The tax rates increasing for rare earths can be understood as rare earths are becoming scarcer.

The urgency for conserving energy and reducing emissions is the reason behind the speedy implementation of the tax reforms. It can only be hoped though that the reforms will be effective and will be an initiator for further regulations on the protection of China’s environment.