Tax for green growth
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China Daily, October 12, 2011
The faster-than-expected transition of the resource tax from a regional program to a national practice next month is more than welcome.
The Chinese government originally planned to roll out such a value-based resource tax across the country over a period of five years. The decision to expedite the process is laudable given the importance and urgency of conserving energy and reducing emissions.
To adequately bolster China's energy conservation and environmental protection efforts, Chinese policymakers should not only ensure the swift implementation of the new resource tax, which is based on sales value instead of production volume, more importantly, they should be ready to widen the list of such taxable resources from crude oil and natural gas to coal as soon as possible.
According to the country's revised resource tax regulations, sales of crude oil and natural gas nationwide will be taxed at a rate between five and 10 percent of their sales value from Nov 1.
Such a value-based resource tax on oil and natural gas was first introduced as a pilot program in Northwest China's Xinjiang Uygur autonomous region on June 1, 2010, its remarkable success explains why it was quickly extended to 11 other provinces in December last year and is now to be rolled out nationwide.
Under the previous resource tax, which was levied on production volume, local governments were prevented from benefiting from energy and commodity price increases while being required to take care of most of the environmental problems caused by mining and energy giants.
The pilot program in the far-western Xinjiang region almost immediately brought about a sea change in the region, and between July and December last year, Xinjiang's resource tax on oil and natural gas rocketed by 450 percent over the previous six months.
Levying such a value-based resource tax kills two birds with one stone.
On the one hand, local governments get a needed boost to the funds available for environmental protection. Some even hope that the increase in tax revenues will help reduce local governments' reliance on land sales, one of the causes of the stubbornly high property prices in many Chinese cities.
On the other hand, the value-based resource tax will lead to a rise in the prices of oil and natural gas, which will remind Chinese consumers of both the scarcity of resources and the urgent need for greater energy efficiency.
To sustain its economic growth on a more environmentally friendly and energy-saving path, China needs to put into place more tax and price incentives to encourage better and more efficient use of energy and resources.
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