[miningmx.com] — CHINA will extend a regional resource tax on domestic sales of crude oil and natural gas to the whole country and widen it to include coking coal and rare earths from November 1, the government said on Monday.
The move, billed as a way of conserving resources and limiting environmental damage, is part of a long-awaited tax reform that would enrich the coffers of local governments but slash the earnings of resource companies, such as PetroChina Co , China National Petroleum Corp and Baotou Steel Rare Earths by billions of dollars each year.
The sales of crude oil and natural gas sales nationwide would be subject for a tax of between 5% to10%, the State Council, or China’s cabinet, said on Monday. It would also impose a sales tax of 0.40 to 60 yuan per tonne on rare earth ores and between 8 and 20 yuan a tonne on coking coal.
The government did not give details on why there was such a wide range in the tax levied on rare earths but analysts said heavy rare earths, which are more scarce, would likely face heavier taxes.
Taxes on other types of coal remained unchanged at 0.30 to 5.00 yuan per tonne.
“China’s oil and gas sector is still monopolised by state-owned companies which have enjoyed good profitability … this new tax system will shift profits from companies to governments in poorer provinces,” said Wang Aochao, head of research at UOB-Kay Hian in Shanghai.
China’s resource tax at present is calculated based on the volume of production, instead of sales value, which has denied local governments from reaping the benefits of the surge in energy and commodities prices.
“But the tax on coal will remain volume-based because the main coal producing provinces, such as Shanxi, are already very wealthy. So the new regime is for coking coal and rare earths to reflect the scarcity of those resources.”
With inflation ranking high on the government’s worries, the timing of the resource tax overhaul could be interpreted as Beijing’s confidence that the recent rally in consumer prices has been kept under control.
The announcement also came just days after Beijing said it would cut retail prices for gasoline and diesel by about 3% from Sunday to take prices off record highs.
China also made changes to the taxes on foreign-invested onshore and offshore oil and gas fields by replacing the royalties-based system with resource tax, which would affect firms such as Shell , Chevron , Conocophillips , BP, Eni as well as a string of independents.
RESOURCE COMPANIES TO SUFFER
Moody’s senior analyst Kai Hu said in a note that an extended resource tax could cost China’s triumvirate of state oil firms a combined 44 billion yuan ($6.89bn) a year.
“Assuming the average crude-oil selling price is $80 a barrel, the resource tax amounts to $4 a barrel – or 6 to 13 times the current tax rate,” Kai said in the note.
Coal giants such as Shenhua Energy , Yanzhou and China Coal would also suffer, although the new tariff is more benign compared to market expectations of a 3% to 5% sales tax.
Resource tax reforms have been postponed twice in recent years. They were first delayed in 2007 over concerns that they would add inflationary pressure to an overheating economy. The second delay in 2008 was caused by fears of hurting companies during the global financial crisis.
Beijing finally unveiled its first resources tax on oil and natural gas at a rate of 5% in Xinjiang on June 1 last year as a way of retaining some of the region’s mineral wealth in local hands. It then extended the tax to 11 other provinces in December.
