Resource Tax Reform Postponed Again      

With the surge of energy prices such as oil and coal, and the energy conservation and emission reduction issues becoming so severe, Chinese leadership wants to speed up the resource tax reform. (CCR2008, No. 11, Page 5) Nevertheless, experts think that, since China's CPI index is at a historical high, and imposing a resource tax may trigger further consume price increases, the resource tax reform will likely have to be postponed again, despite its value in protecting resources and promoting their comprehensive utilization.
   "The rising price of production materials has become the major driving force for inflation," experts say, "We should therefore be very cautious in the resource tax reform." Containing inflation is a major target for the macro control exercised by the state today. The goal is to limit inflation to 4.8% in 2008, but the CPI has stayed high all year, presenting a greater challenge for macro control for the near future. If the resource tax had been imposed, inflation would be expected to worsen, and controls on inflation would be more difficult. What is more worrying is that the imposition of the resource tax would trigger further rise of price and even expand the price rise scope.
   "The time for imposing the resource tax is therefore essential," said market analysts, "CPI growth this March was high, at 8.3%. There are as yet no signs of a significant recovery. Therefore, it is very difficult for the government to pursue the tax reform."
   Ma Kai, former Director of the National Development and Reform Commission (NDRC), said in March that "the resource tax reform mainly involves two tough points. One is defining different tax rates for rich mines versus lean mines and giving special consideration to regional differences. The other is that, in the end, all of the taxes will be borne by consumers, so the reform should be linked to price reform, and to the tax's impact on non-resource sectors and the bearing capacity of consumers."
   "Straightening up the prices of resources and enabling the prices to serve as a lever to influence the market mechanism and thereby encourage more rational uses of resources. With the greater pressure of inflation in China, this tax reform must be subject to the overall situation of the macro economic development," said Zhang Guobao, Director of the State Energy Bureau. "The government must consider the bearing capacity of various sectors and choose an optimal time and appropriate pace for advancing the reform."
   According to NDRC studies, China has depleted its resources and damaged its environment in the process of achieving its rapid economic growth. The national GDP was around 5.5% of the world total in 2007. That sounds favorable, but not so favorable when you consider that China's consumption of for energy was equivalent to 2.65 billion tons standard coal, accounting for around 15% of the world total; the consumption of steel reached 388 million tons, 30% of the world total; and the consumption of cement reached 1.24 million tons, 54% of the world total.
   In an effort to reset the balance, a plan for reforming resource taxes was formulated at the end of 2006 by governmental departments including the Ministry of Finance and the State Taxation Bureau. But the government postponed reform because of new vigilance for the CPI and inflation.