Chinese walker

In the 1994 tax reform, the price and allocation for some part of mineral products were still regulated under state planning due to historical issues. As from May 1994,the tax rates for extracts of metallic and non-metallic mineral products were adjusted from 17% to 13% to stabilize and develop the excavation industry. But that also brought along some issues:

(1) to impose a lower rate of tax on non-generable mineral resources is not consistent with the requirement for energy conservation and environmental protection;
(2) low tax rate will reduce the revenue of the region with the resource deposits and weaken the region’s capability to provide public goods;
(3) the effectiveness of the policy is not prominent. The tax saving to the mining enterprises will result in the users of the mineral products paying more tax equal to the tax saving. It is because users in the next stage of the VAT chain have paid less  input VAT for the goods purchased; and
(4) the taxpayer and the tax authorities will incur additional administrative costs to handle the payment and collection of tax for goods subject to different tax rates.

After the transformation reform, mining enterprises will have a lower tax burden since the VAT paid for the purchased capital goods fall under the scope of input credit. To achieve a level playing field for taxpayers, make a uniform tax system, promote energy conservation and the synergistic utilization of resources requires the reinstatement of the tax rate for extracts of metallic and non-metallic mineral products to 17%.

After raising the VAT rate for mineral products, the tax burden will only reallocated between the mining enterprises and the enterprises using minerals as inputs, without causing an overall increase in VAT amount.

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