China's Ministry of Land and Resources has recently agreed on a very important reform in the natural resources tax system and submitted it to the State Council for final approval. This reform may cause a comprehensive price rise for all commodities in China after it is approved and enforced by the State Council.
According to the information obtained from senior officials at the Ministry of Land and Resources, there are two key points in the reform of the natural resources tax system.
The first point is that the range of commodities subject to this tax will be expanded
Currently, the natural resources tax is imposed on crude oil, natural gas, coal, non-metal minerals, ferrous mines, non-ferrous mines and salt. However, the reform foresees the expansion of the list so as to include all domestic natural resources. As a result, other mines, woods, grasslands, water sources, lands, and other natural resources will be subject to the tax.
Secondly, the taxation method will be changed from specific duty to ad valorem duty
It is understood that the current system of specific duties is falling short of achieving its objective. In this method of taxation, the duty is calculated on the basis of the quantity of the natural resources in terms of cubic meters or metric tons. Therefore, it does not reflect the changes in the prices of these resources. The prices of many raw materials have increased sharply throughout the current year. As a result, specific duty has lost its impact in terms of energy-saving and protecting natural resources. However, the ad valorem duty will take into consideration the price hikes of natural resources, and will thus be more efficient.
However, against the current background of high CPI and the risk of higher inflation, the government is worried that the issuing of the new tax system could lead to serious and undesired influences on economic development and social stability. Therefore, the government is acting prudently and keeping the policy announcement date a secret for the time being.
According to the information obtained, the planned new tax rate for natural resources will be at around 3-5 percent. However, due to the huge pressure of inflation, a figure closer to three percent seems more reasonable. One thing is for sure; the reform will be implemented sooner or later. And consequently, cost levels in almost all industries, including steelmaking, will see a sharp rise.