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Tuesday, October 11, 2011

China to Tax on Oil, Gas Resources Nationwide to Reduce Consumption

This should have been done long time ago.
Natural resources belong to all Chinese citizens.
The tax collected should benefit all, not just a few.

China will extend a value-based tax on sales of oil and natural gas nationwide starting next month to help save energy in the world’s fastest-growing major economy and boost local government revenues to develop inland provinces.

The oil and gas tax, ranging from 5 to 10 percent of sales, will be levied on both domestic producers and joint ventures with overseas companies, the Ministry of Finance said in a statement today. China will impose a value-based tax on other commodities when the time is right, it said.

China, which currently levies the tax based on volume, rolled out a 5 percent tax on oil and gas sales in Xinjiang on a trial basis in June last year to help fund development of the western province. The new regulation may crimp the earnings of companies including PetroChina Co. and China Petroleum & Chemical Corp. (600028), known as Sinopec.

“The tax change will slash our earnings forecast for PetroChina and Sinopec by 2 percent in 2011 and 11 percent in 2012,” Anna Yu, a Hong Kong-based energy analyst with ICBC International Research Ltd., said by telephone.

PetroChina fell 1.7 percent to close at HK$9.02 in Hong Kong trading, while Sinopec declined 1 percent to HK$7.09. The benchmark Hang Seng Index gained 2.4 percent.

Cnooc Ltd. (883), China’s biggest offshore energy explorer, advanced 3.9 percent to HK$13.72, the highest since Sept. 16. Ventures with overseas partners account for 31 percent of the company’s projects, according to ICBC’s Yu.

“The impact on Cnooc should be non-material given the tax is replacing royalties that offshore explorers currently pay,” she said.
Funds for Development

The government is planning 23 projects in West China at a cost of 682.2 billion yuan ($107 billion), the National Development and Reform Commission, the country’s top economic planner, said last year. The projects include the construction of roads and railways, wind farms and a nuclear power plant.

“China will likely apply a 5 percent tax rate nationwide in the short term as they did in the western regions,” said Qiu Xiaofeng, an analyst at Beijing-based Galaxy Securities Co. “A 10 percent rate would be too heavy for oil and gas producers.”

China Shenhua Energy Co., the country’s biggest coal producer, was unchanged at HK$31, while China Coal Energy Co. surged 6.9 percent to HK$8.17.

“Tax levies on coal mining are still volume-based and Chinese listed coal miners currently pay taxes within today’s range,” Helen Lau, a Hong Kong-based analyst at UOB Kay Hian Ltd., said by telephone. “We don’t expect the government to change the tax to a value-based one in the short term as they did to oil and gas.”
Coal, Metals

On a volume basis, China will levy a tax of 8 to 20 yuan on every metric ton of coking coal sold and 0.3 to 5 yuan a ton for other coal grades starting next month, the government said yesterday, without stating current tax rates.

The tax on coking coal is 8 yuan a ton at present and 0.3 to 5 yuan a ton for other coal grades, according to ICBC’s Yu.

Starting in November, the levy on iron ore sales will be 2 to 30 yuan a ton, the tax on rare-earth minerals 0.4 to 60 yuan a ton, and the rate on nonferrous metal ore 0.4 to 30 yuan a ton, according to the government.

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