The resource tax is imposed on the entity and individual engaged in exploiting various taxable natural resource. The taxation scope covers 7 major categories, i.e. crude oil, natural gas, coal, other non-medal ores, ferrous ores, non-ferrous ores and salt. The resource tax is collected under the rate on value method and the amount on volume method. The resource tax rate applicable to crude oil and natural gas products is 5% to 10% of the sales volume. In terms of the resource tax, the tax amount standard for other tax items varies from RMB 0.3/ton to RMB 60/ton, depending on the kinds and locations of the resources.
Resource Tax Reform - The Details
Enterprises that extract taxable natural resources within the territory of China are liable to pay Resource Tax. Recently, China's State Administration of Taxation (SAT) and Ministry of Finance (MOF) announced the commencement of a comprehensive reform of the Resource Tax system to modernize and strengthen China's approach to its natural resources.
The following three new tax circulars have been released by the SAT and the MOF, setting out the purpose, principles, contents and guidelines for the Resource Tax Reform.
- The Notice on the Promotion of Resource Tax Reform.
- The Notice on the Policies for Resource Tax Reform.
- The Provisional Measures for the Trial Reform of Water Resource Tax According to these Circulars, the first stage of this Resource Tax Reform is focusing on converting the tax basis of China's Resource Tax from quantity to price and on the implementation of a water resource tax pilot program in Hebei Province. Local tax authorities at the province level have been required to formulate their corresponding local tax rules. Implementation is to have started from July 1, 2016.
Taxable items and tax rates
|Taxable items||Tax amount per unit|
|1. Crude oil||8-30 yuan per ton|
|2. Natural gas||2-15 Yuan per 1000 cubic meters|
|3. Coal||0.3-5 Yuan per ton|
|4. Other non-metal ores||0.5-20 Yuan per ton or per cubic meter|
|5. Ferrous metal ores||2-30 Yuan per ton|
|6. Non-ferrous metal ores||0.4-30 Yuan per ton|
|7. Salt |
(1) solid salt
(2) liquid salt
10-60 Yuan per ton
2-10 Yuan per ton
Computation of tax payable
The amount of Resource Tax payable is based on the quantity of the taxable products by applying the applicable tax amount per unit. The formula is:
Tax payable = Quantity of taxable products × Applicable tax amount per unit
The main tax reductions and exemptions
- Crude oil used for heating or repairing wells in the course of exploiting crude oil may be exempt
- For taxpayers suffering huge losses due to such reasons as accidents or natural disasters in the course of exploiting or producing taxable products, tax reduction or exemption may be given by taking into consideration the seriousness of the situation
- The Resource Tax payable on iron ores and on the non-ferrous metal ores by independent mines may be reduced.
The Current Resource Tax Regulation
The current PRC Resource Tax Provisional Regulation and its implementation rules (together, the Regulation) are over 20 years old, formulated in 1993 and slightly amended in 2011.
The Resource Tax payable for most taxable items is calculated based on the quantity of the natural resource sold / used and the tax rates.
The tax rate ranges from a few RMB per ton to 60 RMB per ton, depending on the scarcity, grade and location of the taxable natural resource.
Tax authorities at the provincial level are generally not allowed to decide or adjust the tax rate for a natural resource, unless the central government has not specifically indicated the applicable tax rate for such a natural resource.
As early as in 2009, the China government realised that this Resource Tax system was falling behind China's economic development. In many formal occasions, the China government agreed that the Regulation has the following critical issues.
- The quantity-based tax calculation method is very rigid and cannot respond to the fluctuation of resource market price.
- The range of taxable natural resources is narrow and does not include such important resources as water, forest and pasture.
- The Resource Tax overlaps with many local surcharges that are also calculated and imposed on quantity bases, which significantly add to the taxpayer's burden, especially when the market goes down.
- Provincial governments do not have enough authority to change or adjust the tax rates based on local market and industry status.
The Resource Tax Reform
As defined by the SAT and the MOF, the purposes of the Resource Tax Reform is to increase the elasticity of the Resource Tax system, eliminate duplicate local surcharges, enhance the authority of provincial government, and gradually cover more natural resources as taxable items.
For these purposes, the Circulars set out the following new policies for implementation in the first stage of the reform:
- Change the tax basis from quantity to price. Except for certain low-value items such as clay, sandstones, and non-metallic ores, all the natural resources will be taxed based on their sales price and the applicable tax rates.
- Grant provincial governments the power to determine the applicable local tax rates within the range indicated by the SAT and the MOF, subject to the final approval of the SAT and the MOF. In particular, the Circulars provides an indicative tax rate range for certain key types of natural resources, e.g., 1 percent to 6 percent for iron ore concentrate, and 3 percent to 9 percent for aluminium raw ore. Provincial governments may use any rate within such ranges for the resources extracted at their localities and adjust some tax rates based on local market and finance situations.
- Eliminate the Mineral Resource Compensation Surcharge and the Price Regulation Fund Surcharge. These are the two main local surcharges attached to the current Resource Tax system. They will be formally cleared out of the Resource Tax system, together with some other local surcharges identified as inconsistent with the China tax law and regulations.
- Launch a Trial Water Resource Tax Pilot Program in Hebei Province. In this pilot program, Hebei Province will start to levy resource tax on the consumption / use of both surface water and groundwater, and the resource tax will be calculated based on water quantity and corresponding tax rates. Different tax rates will be applied based on local water resource status and the nature / purpose of water consumption. Punitive tax rates may also be imposed if a taxpayer exceeds the prescribed water consumption quotas.
With an aim to encourage resource saving and environment protection, the Circulars also provide some preferential treatments. For example, resources extracted by way of filling mining may enjoy a 50 percent reduction on the resource tax that is due, and resources extracted from a depleting mine may enjoy a 30 percent reduction. At the same time, provincial governments are also allowed to formulate other preferential tax treatments for extraction / utilisation of low-grade ore and wastes.
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