Revised provisional regulations on resource tax reform came into effect on November 1, changing the way resource tax is calculated for crude oil and gas producers. The tax for them is now 5 percent of their sales value, as opposed to the previous method that was based on the quantity of production.

The change aims to enhance efficiency of resource exploitation and utilization and promote energy conservation and emissions reduction. It will substantially increase resource taxes on oil and gas. However, coal is exempt.

Taxing resource exploitation based on sales is an international practice, and it has been shown in other countries to be an effective means of enhancing efficiency and reducing the environmental impacts of energy exploitation.

This reform is a major step in the right direction for China, and will benefit the country's economy and environment, increase energy efficiency and decrease wealth disparity. However, it is important that this is also eventually applied to coal.

Once a non-renewable energy resource is utilized, we should take its future exhaustion into consideration. Exploitation and utilization should not only focus on current economic benefits, but also take account of the sustainable development of the economy. The resource tax will provide an incentive for more considered, efficient exploitation and utilization by increasing costs.

For China, energy security is an important issue. It is obvious that the most reliable energy source is the domestic reserve. The tax will lessen the increasing pressure on these reserves.

How else will the resource tax reform impact on China's economic development? The tax is collected by local governments, and as such will lead to a more balanced development, especially between the relatively poor western areas and the richer eastern areas, for two reasons.

First, since oil and natural gas resources are concentrated in western provinces, while the major consumers are in eastern provinces, the resource tax reform will lead to a transfer of wealth from rich eastern provinces to those western provinces.

Second, the resource tax reform will also lead to a transfer of wealth in favor of local governments. Major oil and natural gas companies belong to the central government, while it is the local governments that will collect the resource taxes from these companies. If the tax revenues are properly used, they will facilitate economic and social development in western areas.

However, the problem of how to apply this tax to coal remains. Although 70 percent of China's primary energy consumption comes from coal, while the resource provides 80 percent of China's electricity, it is not yet subject to the tax. This is because the high demand for coal means it is a seller's market, and as such the resource tax costs would be rapidly passed on to end consumers. In order to avoid increasing the cost of living for citizens, the government must figure out a way to gradually introduce the tax for coal so as to both benefit the economy and the environment, while protecting price-sensitive consumers.

http://www.globaltimes.cn/NEWS/tabid/99/ID/682431/Applying-new-resource-tax-to-coal-needs-careful-plan.aspx