At the 31st meeting of the Central Leading Group for Comprehensively Deepening Reform, documents including the “Reform Plan for the Transfer of Mining Rights” and the “Reform Plan for the Mineral Resources Equity Fee System” were reviewed and approved.

China will establish a new system of mineral resource rights fees.

The 31st meeting of the Central Leading Group for Comprehensively Deepening Reform was held recently. At the meeting, documents such as the “Reform Plan for the Transfer System of Mining Rights” and the “Reform Plan for the Mineral Resource Equity Fee System” were reviewed and approved.

The meeting emphasized that perfecting the system for the transfer of mining rights is a crucial safeguard for protecting the state’s ownership rights over mineral resources. It is necessary to promote competitive bidding for mining rights, strictly limit the practice of transferring mining rights through agreements, adjust the authority for approving mining rights, and strengthen regulatory oversight and services related to such transfers. With the core goal of safeguarding and realizing the state’s fundamental rights and interests in mineral resources, we must streamline the tax and fee system for mineral resources, appropriately regulate revenues from mineral resource exploitation, and establish a new system of mineral resource royalties that is tailored to China’s specific characteristics.

Among these, regarding the reform of the mineral resource rights and royalties system, the “Draft Scheme for the Reform of the Mineral Resource Rights and Royalties System” (hereinafter referred to as the “Scheme”), jointly researched and drafted by the Ministry of Finance and the Ministry of Natural Resources and released last October (for public comment), outlines the framework and key components of the mineral resource rights and royalties system, as well as supporting reform policies.

The specific contents of the “Plan” include: First, in the stage of mineral rights transfer, we will improve the system for transferring mineral rights, further expand the scope of competitive bidding for mineral rights, abolish the fees for prospecting rights and mining rights, and instead collect revenues from the transfer of mineral rights. It is recommended that the revenue from the transfer of mineral rights be shared between the central and local governments at a ratio of 5:5. Second, in the stage of mineral rights possession, we will adjust the fees for prospecting rights and mining rights into fees for the occupation of mineral rights. Those who occupy mineral rights to carry out exploration and mining of mineral resources shall pay the fees for the occupation of mineral rights in accordance with the law. The fees for the occupation of mineral rights will be collected annually by the financial authorities in conjunction with the competent departments for mineral resources, based on the area occupied and a fixed rate per unit area. These fees will be allocated to the central and local treasuries in a ratio of 2:8, with the revenue shared between the central and local governments. Third, in the stage of mineral extraction, we will appropriately incorporate the compensation fee for mineral resources into the resource tax and further refine the resource tax system. Fourth, in the stage of mine environmental remediation and restoration, we will abolish the deposit for mine environmental remediation and restoration, establish a fund for mine environmental remediation and restoration, set up a dynamic supervision mechanism, promote the internalization of environmental remediation costs, and ensure that mining enterprises truly fulfill their responsibilities for mine environmental remediation and ecological restoration. Mining enterprises must set up separate accounting items and, in accordance with the requirements for mine environmental remediation and ecological restoration, set aside a certain percentage of their sales revenue into the mine environmental remediation and restoration fund, which will be included as part of the enterprise’s costs. The funds thus set aside will be used by the enterprises themselves to carry out comprehensive environmental protection and remediation efforts at the mines.

The supporting reform policies proposed in the “Plan” include: First, fees for the occupation of mining rights and proceeds from the transfer of mining rights will be incorporated into general public budget management and centrally allocated by fiscal authorities at all levels for expenditures related to geological surveys and ecological conservation and restoration. Second, the policy allowing geological exploration units to convert mining right payments into capital contributions will be abolished. Third, the policy requiring the retroactive payment of mining right payments that have already been converted into state capital contributions will be abolished.

In addition, the “Plan” also sets out a timetable for several specific reform initiatives. By the end of 2017, the Ministry of Finance, together with the competent authorities for mineral resources, will complete the study, revision, or drafting of the “Administrative Measures for the Collection and Use of Fees for the Occupation of Mining Rights” and the “Administrative Measures for the Collection and Use of Proceeds from the Transfer of Mining Rights,” and will launch pilot programs. A system for publicizing information on mining right holders will be established, characterized primarily by enterprise disclosure, social oversight, government spot checks, and industry self-regulation. The system will include in its disclosures mine environmental restoration and land reclamation plans as well as the status of payment of mineral resource taxes and fees, and will establish a “blacklist” (comprising an abnormal list and a list of serious violations). By 2020, one initiative will be completed: the study and revision of relevant provisions of the “Mineral Resources Law” and its supporting regulations. □ (Zonghe)

Attachment: Notice on Public Solicitation of Comments on the Draft Reform Plan for the Mineral Resource Rights Fee System

　　Cai Jian [2016] No. 750

Relevant units:

In accordance with the requirements of the reform of the ecological civilization system, the Ministry of Finance, together with the Ministry of Natural Resources, has drafted the “Reform Plan for the Mineral Resource Rights and Royalty System” (hereinafter referred to as the “Reform Plan”). Given that the proposed reforms involve both public interests and the rights and interests of mining enterprises, we are now making the “Reform Plan” publicly available for comments from October 21, 2016, to October 25, 2016. If you have any comments, please submit them in writing (individuals must provide their real names, organizations must affix their official seal, and include contact information).

　　Contact Information:

　　Department of Economic Construction, Ministry of Finance

Fax: 010-68552874, Email: huanzichu@sina.com

Ministry of Finance

October 21, 2016

Reform Plan for the Mineral Resource Rights Fee System

　　(Draft for Soliciting Opinions)

　　China’s current system of mineral resource taxes and fees has played an important role in safeguarding national interests, regulating resource revenues, and raising fiscal revenue. However, it also suffers from issues such as imprecise positioning, unclear functions, the inexpensive acquisition of mineral resources, and failure to effectively implement governance responsibilities for mining enterprises. In accordance with the “Overall Plan for Reform of the Ecological Civilization System” and the “Implementation Plan for the Division of Key Tasks from the Sixth Meeting of the Central Financial and Economic Leading Group,” the Ministry of Finance and the Ministry of Natural Resources, together with relevant departments, have adopted a problem-oriented approach to study and propose a reform plan for the mineral resource rights fee system, as detailed below:

　　I. General Requirements

　　(1) Guiding Ideology and Objectives: Fully implement the spirit of the 18th National Congress of the Communist Party of China and the Third, Fourth, and Fifth Plenary Sessions of the 18th Central Committee; deeply study and carry out the important speeches delivered by General Secretary Xi Jinping; in accordance with the requirements of the “Overall Plan for Reform of the Ecological Civilization System,” take safeguarding and realizing the fundamental rights and interests of the state in mineral resources and ecological environment as the core objective, and aim to establish a fair competitive environment in the mining industry. Thus, develop a new system of mineral resource rights fees that is tailored to China’s specific characteristics.

　　(2) Basic Principles: First, further streamline the tax and fee system for mineral resources, foster a fair competitive market environment, appropriately regulate revenues from mineral resource exploitation, and safeguard the integrity of national interests. Second, enforce the responsibility of mining enterprises to restore and rehabilitate the environment, promote intensive and efficient use of resources, and accelerate environmental remediation and ecological restoration in mining areas. Third, avoid placing additional burdens on enterprises. Fourth, reasonably adjust the balance of interests between the central and local governments, increase the central government’s share of revenue, weaken the direct financial incentives for local governments tied to resource development, and reduce instances of illegal and unregulated mining as well as the underpricing and reckless sale of resources.

　　II. Framework and Main Contents of the Mineral Resource Rights Fee System

　　Institutional Framework: At the stage of mineral rights transfer, we will refine the mineral rights transfer system, further expand the scope of competitive bidding for mineral rights, and abolish the fees for exploration rights and mining rights, instead collecting revenues from the transfer of mineral rights. At the stage of mineral rights possession, the fees for exploration rights and mining rights will be adjusted to become mineral rights occupancy fees; those who occupy mineral rights to carry out mineral resource exploration and extraction shall pay the mineral rights occupancy fees in accordance with the law. At the stage of mineral extraction, the mineral resource compensation fee will be appropriately incorporated into the resource tax, thereby improving the resource tax system. At the stage of mine environmental remediation and restoration, we will abolish the deposit for mine environmental remediation and restoration, establish a mine environmental remediation and restoration fund, set up a dynamic regulatory mechanism, promote the internalization of environmental remediation costs, and ensure that mining enterprises truly fulfill their responsibilities for mine environmental remediation and ecological restoration.

　　The main contents include:

　　(1) Abolish the fees for exploration rights and mining rights, and establish a revenue from the transfer of mineral rights. The existing fees for exploration rights and mining rights were designed to reflect the state’s investment returns on mineral deposits discovered with state funding. In accordance with the principle of fully realizing the state’s ownership rights over mineral resources, the revenue from the transfer of mineral rights shall apply to all mineral rights transferred by the state and shall be determined once and for all at the time of transfer. We will advance reform of the mineral rights transfer system by taking mineral resource planning as the foundation, fully promoting competitive bidding for mineral rights transfers, strictly limiting negotiated transfers, adjusting the authority for approving mineral rights, and ensuring seamless integration between the reform of mineral rights transfers and the system of mineral resource royalties. In principle, mineral rights shall be transferred through open and competitive methods such as bidding, auction, and public listing. For transfers conducted via auction or public listing, the bid amount submitted by the winning bidder shall constitute the revenue from the transfer of mineral rights. For transfers conducted via bidding, the winning bidder shall be selected based on comprehensive evaluation according to the bidding criteria, and the bid amount shall be set as the revenue from the transfer of mineral rights. For transfers conducted via negotiated agreements, the revenue from the transfer of mineral rights shall be determined by reference to benchmark prices reflecting similar market conditions. Revenue from the transfer of mineral rights shall be paid in cash, and specific collection procedures shall be formulated separately by the Ministry of Finance in coordination with the competent authority for mineral resources.

　　According to the Mineral Resources Law and the Property Law, mineral resources are owned by the state, and their revenues should primarily be allocated to expenditures such as geological surveys and ecological restoration of mining areas. The proceeds from the transfer of mining rights should be treated as central government revenue. Given that China’s mineral resources are predominantly concentrated in the central and western regions, it is important to strike a balance between the state’s ownership of mineral resources and the interests of the resource-rich regions. This balance should both reflect support for the central and western regions and appropriately reduce the direct financial incentives for local governments to engage in resource development. Moreover, it should help curb illegal and unregulated mining activities as well as the practice of selling resources at low prices. Therefore, we recommend setting the sharing ratio of mining rights transfer revenues between the central and local governments at 5:5.

　　(2) Adjusting the exploration rights fee and mining rights fee to a mineral rights occupation fee represents a long-term, foundational revenue stream for the state, equivalent to mineral land rents in foreign countries. The mineral rights occupation fee is collected annually by the fiscal authorities in conjunction with the competent departments for mineral resources, based on the occupied land area and a fixed quota per unit area. The per-unit-area quotas are categorized into two types—exploration and mining—and a dynamic adjustment mechanism will be established in response to changes in mineral product prices and the needs of economic development, thereby enhancing the fee’s ability to regulate the mineral rights market and curb practices such as “land grabbing” and “securing land without conducting exploration.” Given that the mineral rights occupation fee is specifically designed to cover the costs associated with the occupation of mineral rights for the exploration and extraction of mineral resources, it is advisable to retain the bulk of this fee at the local level. We recommend transitioning from the current practice of collecting exploration rights fees and mining rights fees separately according to different registration authorities and hierarchical levels to a system under which the Ministry of Finance’s resident commissioner offices would oversee collection and remittance, with funds allocated to the central and local treasuries in a 2:8 ratio. The specific implementation procedures would be formulated jointly by the Ministry of Finance and the competent departments for mineral resources.

　　(3) Fully advance the reform of the resource tax by adopting a value-based taxation approach for most mineral resource items, thereby linking the resource tax to resource prices that reflect market supply and demand. This will establish an automatic tax adjustment mechanism and enhance the flexibility of the tax system. At the same time, in accordance with the principle of transforming fees into taxes, appropriately integrate mineral resource compensation fees into the resource tax, abolish various illegally established fees and funds, address the issue of overlapping taxes and fees and overlapping functions, and standardize the relationship between taxes and fees.

　　(4) Abolish the deposit for mine environmental remediation and restoration, and establish a Mine Environmental Remediation and Restoration Fund. Mining enterprises shall set up a separate accounting account and, in accordance with the requirements for mine environmental remediation and ecological restoration, set aside a certain percentage of their sales revenue into the Mine Environmental Remediation and Restoration Fund, which will be included as part of the enterprise’s costs. The funds thus set aside shall be used by the enterprises to carry out comprehensive environmental protection and remediation efforts at mining sites. Relevant authorities, in line with their respective responsibilities and in compliance with the requirements of the “streamlining administration, delegating power, improving regulation, and providing better services” reform, shall establish a dynamic supervision mechanism, strengthen supervision during and after the event, and ensure that enterprises fulfill their responsibilities for mine environmental remediation and restoration. For enterprises that fail to meet the required standards for mine environmental remediation and restoration, they shall be compelled to make rectifications.

　　III. Supporting Reforms

　　(1) The fees for the occupation of mining rights and the proceeds from the transfer of mining rights are state-owned asset revenues. In accordance with the Budget Law and relevant requirements, such as the “Notice of the State Council on Issuing the Plan for Promoting the Integrated Use of Fiscal Funds” (Guofa [2015] No. 35), these revenues shall be incorporated into general public budget management and centrally allocated by fiscal authorities at all levels for expenditures related to geological surveys and ecological conservation and restoration.

　　(2) Repeal the policy allowing geological exploration units to convert mineral rights payments into capital contributions. The original intent of this policy was to support the transformation of geological exploration units. However, after several years, the development of these units has become increasingly diversified: some have successfully transformed and now operate entirely as enterprises, while others still lack sufficient reform momentum and are progressing slowly in their transformation. To ensure a fair competitive market environment, we recommend repealing the policy that allows geological exploration units to convert mineral rights payments into capital contributions.

　　(3) Repeal the policy requiring supplementary payment of mining rights fees that have already been converted into state-owned capital. The current policy stipulates that for mining rights fees already converted into state-owned capital, a supplementary cash payment is still required, which necessitates a simultaneous reduction in state-owned capital. This process is complex and prone to disputes. Given that, after mining rights fees are converted into state-owned capital, enterprises holding state-owned capital assume the responsibility of preserving and enhancing the value of such capital and are subject to oversight by institutions fulfilling the duties of investor in state-owned assets, there is no risk of loss of state-owned assets. Therefore, it is necessary to discontinue the practice of requiring supplementary cash payments for mining rights fees that have already been converted into state-owned capital.

　　IV. Organization and Implementation

　　(1) Strengthen organizational leadership. Establish a joint mechanism for reforming the mineral resource rights and revenue system, clearly define division of responsibilities, and ensure close coordination among departments such as the Ministry of Finance and the competent authorities for mineral resources, each fulfilling its assigned duties to promote this reform.

　　(2) The Ministry of Finance, in collaboration with the competent authorities for mineral resources, will study, revise, or formulate the “Administrative Measures for the Collection and Use of Mining Rights Occupation Fees” and the “Administrative Measures for the Collection and Use of Proceeds from the Transfer of Mining Rights,” and launch pilot programs. Timeline: Completion by the end of 2017.

　　(3) Properly handle the transition between the old and new systems. In accordance with the principle of “old issues, old solutions; new issues, new solutions,” develop and implement measures to ensure a smooth transition between the old and new systems. Timeframe: Completion by the end of 2017.

　　(4) Establish a new mechanism for credit-based constraints on mining right holders, along with joint oversight by regulatory authorities, industry associations, and the public. Develop an information disclosure system for mining right holders characterized primarily by enterprise self-disclosure, public oversight, government spot checks, and industry self-regulation. Include in the disclosure requirements mine environmental restoration and land reclamation plans as well as the status of mineral resource tax and fee payments. Create a “blacklist” (comprising lists of abnormal entities and those with serious violations), and gradually establish a coordinated incentive and punishment mechanism that spans regions, departments, and sectors. This will foster a collaborative governance framework featuring coordinated efforts among government agencies, self-regulatory management by industry associations, active participation by credit service providers, and broad public oversight through social opinion. Timeline: Completion by the end of 2017.

　　(5) Study and revise relevant provisions of the “Mineral Resources Law” and its supporting regulations. In accordance with the requirements of administrative approval system reform—namely, streamlining administration and delegating power while combining deregulation with regulation—accelerate reforms in areas such as the administrative approval system for mineral resources, the supervision and management system for mining rights, the management system for mineral resource reserves, and the evaluation system for mining rights, thereby enhancing the scientific, standardized, and rule-of-law-based level of government administration. Timeline: Completion by 2020.