Resource taxes are likely to be collected on the basis of price instead of quantity, revealed Wang Min, Vice Minister of Land and Resources, during an international conference held in Beijing Tuesday. Enterprises with high consumption of crude oil, coal, and non-ferrous ores would be most affected, the Oriental Morning Post reported on November 14, 2007.

A blueprint for the new resource tax reform is now under discussion and will soon be submitted to the State Council for examination and approval. The exact time for the announcement of the new tax has yet to be released.

"I expect the new tax rate to stay around 3 percent," said a Beijing-based TX Investment Consulting analyst. "Most people predict the rate will range between 3 and 5 percent. But I think it won't be too high, for that will accelerate inflation in China."

The resource tax is imposed on enterprises as a charge for their use of State-owned resources. Ores, forests, grasslands, waters, and lands all belong to natural resources, but current taxable items only include crude oil, natural gas, coal, non-metal ores, ferrous ores, non-ferrous ores and salt.

Some specialists have already pointed out deficiencies in the old resource tax system. For one thing, the tax is only imposed on ores and salts, thus unable to promote the rational use of resources of all sorts. Additionally, the low tax rate leads to a low cost of production. This will be a bane to the country's transformation from extensive economic growth to an intensive one.

According to Hu Yijian, professor at Shanghai University of Finance and Economics, the new price-based taxation method will help the country save resources and increase government revenues.

However, market observers responded differently to this news. Some feared the new taxation method might lead to a rise in production costs and a drop in enterprises' profitability, while the others believed listed enterprises would not be deeply affected in the long run for they could adjust pricing strategy to cover the rising cost. Most people now worry that the tax reform will result in another round of price hikes.

In 2006, China's consumer price index (CPI), a main gauge of inflation, increased 1.5 percent over the previous year. In 2007, the figure soared up to 4.8 percent and next year, it is estimated to remain at 4.3 percent. How to effectively combat inflation becomes a major concern of China's policy makers.

"Given the current inflation rate, choosing the best time to announce the new tax is of vital importance to the maintenance of market stability," said the analyst. After the fuel price surged on November 1, any further price rise in raw materials will put the country under greater pressure of inflation.

(China.org.cn by Chen Xia, November 16, 2007)