Author: Lin Qiang

　　Affiliation: Fujian Provincial Bureau of Geology and Mineral Resources / Sanming Datian Xinyuan Sha Mining Company

　　This article was originally published in "Land and Resources Intelligence." 2016 Year No. 1 period

　　Abstract: This article begins by elaborating on the unique tax and fee systems prevalent in both domestic and international mining industries. After systematically analyzing the existing problems in China’s current mining tax system—including issues related to the relationship between taxes and fees, the structure of taxes and fees, tax rates, the entities responsible for collection, methods of assessment, target design, profit-sharing mechanisms, and industry-specific characteristics—the article proposes the following measures: refining the functional positioning of taxes and fees, reforming tax collection and administration practices, adjusting and optimizing the tax rate structure, clarifying the interests of all parties involved, broadening the scope of fund utilization, strengthening the regulatory role of taxation, implementing preferential fiscal and tax policies, and advancing tax reforms aimed at ecological security. 8 Proposals for reforming the mining tax system.

　　The legal system and policies governing mining taxes and fees in China are composed of the Mineral Resources Law, the Tax Law, related subsidiary regulations, and national resource policies. Our country has been... 1984 The current mining tax system, which was introduced in the year resources tax was first levied, is... 1986 Year, 1994 Year, 2004 Year and 2010 Formed gradually on the basis of four annual reforms, the system has increasingly revealed functional shortcomings as the market economy has evolved and changed, and it can no longer adequately meet the development needs of the mining industry. The author now offers a brief exploration of China’s mining tax system reform.

　 　I. Overview of Mineral Tax and Fee Systems in China and Abroad

　　1.1

　　An Overview of the Types of Mining Taxes and Fees in China

　　Currently, the taxes and fees involved in China's mining industry include: 30 Other types exist, but the main ones include value-added tax, income tax, resource tax, compensation fees for mineral resources, and fees and charges for mining rights—though these are fewer in number. 10 species, while the value-added tax, income tax, and resource tax respectively account for a certain proportion of the total mining tax revenue. 49.27% 、 24.33% 、 15.88% The author now focuses solely on 6 The following is a brief overview of mining-specific taxes and fees:

　　( 1 Resource tax: It is a local tax (except for the offshore petroleum resource tax). The state levies this tax to regulate differential income generated from resource extraction and to promote the rational development and utilization of resources, in accordance with the principle of... “ Universal levy, differential adjustment ” is a tax levied on the extraction of taxable mineral products or the production of salt within the territory of China. Among these, with the exception of oil and gas resources and coal resources, which are taxed based on a rate calculated as a percentage of their value, other mineral products are taxed according to a fixed amount per unit quantity. The specific applicable tax rates are referenced in the “Detailed List of Tax Items and Rates for the Resource Tax.”

　　( 2 Mineral Resource Compensation Fee: This is a property-based revenue that represents the economic realization of the state’s ownership over mineral resources. It is levied by the state on entities or individuals engaged in the mining of mineral resources, based on a value-based taxation method. The amount of the resource compensation fee collected is... = Revenue from sales of mineral products × Compensation fee rate × Mining recovery rate coefficient. The resource compensation fee is shared by the central and local governments according to... 5:5 or 4 : 6 The proportion shall be shared and used exclusively for designated purposes, primarily for expenditures related to the exploration, development, protection, and management of mineral resources.

　　( 3 ) Mining rights usage fee: This is a fee collected by the state from the applicant for mining rights upon granting such rights. Specifically, the payment standard for exploration rights usage fees is: No. 1~3 Exploration year according to 100 Yuan / Square kilometer · Annual payment; starting from the ... 4 Starting from the exploration year, according to... 100 Yuan / Square kilometer · The annual standard increases year by year, but it does not exceed a maximum of. 500 Yuan / Square kilometer · year. The mining right usage fee is calculated based on the area of the mining district. 1000 Yuan / Square kilometer · Annual fees are paid annually. The mineral rights usage fee is shared between the central and local governments according to... 2:8 Proportional sharing.

　　( 4 ) Mineral rights payment: China implements a paid-use system for mineral rights. It stipulates that applicants seeking mineral rights to mining sites that have been explored with state-funded investments and have been confirmed through exploration must, in addition to paying the mineral rights usage fee, also pay a mineral rights payment that has been assessed and confirmed as arising from the state-funded exploration efforts. The mineral rights payment may be made in a lump sum or in installments, and the deadline for paying the prospecting rights payment shall not exceed. 2 The maximum period for paying the mining rights fee is no more than. 6 year. The mining rights payment is also shared between the central and local governments according to... 2 : 8 Proportional sharing.

　　( 5 ) Special Oil Revenue: This is a non-tax revenue belonging to the central government’s fiscal system. It is a levy collected proportionally on the excess revenues earned by domestic crude oil producers when their sales prices exceed a certain threshold. Its purpose is to curb excessive profits and safeguard national interests as well as the public good. The rate is determined based on the monthly weighted average price of crude oil sold by oil-producing enterprises, and the threshold for levying this tax has been adjusted from that of ten years ago. 40 U.S. dollar / The bucket has been adjusted to the current position. 65 U.S. dollar / Barrel, and implement 5 The tax rate is calculated using a progressive, excess-rate method based on value. 20%~40% 。

　　( 6 ) Mining Area Usage Fee: This fee, which is part of the central government’s fiscal revenue, is levied on Chinese and foreign enterprises engaged in offshore oil exploration, as well as on Sino-foreign joint venture enterprises engaged in onshore oil exploration. The fee is calculated based on the total annual production of crude oil or natural gas from each oil and gas field, with an incremental progressive rate applied to any output exceeding the threshold. Specifically, the fee rate for crude oil is: 4%~12.5% ; The rate for natural gas is 1%~3% Enterprises that have already paid the mining area usage fee will no longer be required to pay the resource compensation fee, and the resource tax will also be temporarily suspended.

　　1.2

　　Overview of Types of Mining Taxes and Fees Abroad

　　Overall, the tax systems of major mining countries abroad have become relatively mature, both in theory and in practice. In addition to common taxes such as income tax and value-added tax, the current primary mining taxes and fees include royalties, resource rent taxes, mineral rights rents, dividends, and subsidies for resource depletion. 5 The author now briefly describes the taxes and fees specific to the mining industry as follows:

　　( 1 Royalty: This refers to the fee paid by a mining rights holder for the extraction and depletion of non-renewable mineral resources owned by the mineral resource owner.

　　It is a property-based revenue that reflects the economic rights of resource owners, similar to China’s resource compensation fees. It is primarily used for mineral exploration and development as well as environmental protection. According to the method of assessment, it can be categorized into three types: volume-based royalties, value-based royalties, and profit-based royalties. Royalties are the primary type of fee commonly levied by countries worldwide, and their rates generally range from... 3%~8% Between.

　　( 2 Resource Rent Tax: This refers to a progressive tax levied on mining companies’ profits that exceed their basic investment return levels. Essentially, it is a special form of royalty aimed at using state intervention to adjust the earnings of mining rights holders—differing due to various natural conditions such as resource abundance—thereby promoting fair competition among mining enterprises. Currently, with the exception of a few countries, most nations worldwide—including China (with the exception of the Special Surcharge on Petroleum Profits)—do not impose a resource rent tax on mining companies.

　　( 3 Mining royalty: This fee is charged based on the type of mining activity and the area of land occupied, with annual increases. It reflects the economic relationship between the state and the mining rights holder and essentially represents a form of mineral land rent. Mining royalties are also a common practice internationally, and there are two main scenarios: For mining sites developed through non-state investment, the mining rights holder only needs to pay the mining royalty; whereas for mining sites developed through state investment, in addition to paying the mining royalty, the mining rights holder must also compensate the state for its exploration investments.

　　( 4 ) Royalty: Refers to the mineral rights transfer fee paid by the winning bidder to the resource owner during the bidding and auction process for mining rights. Unlike in China, in major mining countries—with the exception of oil and gas, coal, and generally bedded mineral deposits; common construction materials such as sand, gravel, and soil; mining sites or mineral rights confiscated by relevant authorities during law enforcement; and mining sites with highly promising prospects developed through state investment (including public-interest geological surveys)—the acquisition of mining rights is generally subject to a system of... “ First come, first served. ” Principle, without incurring any other fees.

　　( 5 Resource Depletion Subsidy: This refers to a subsidy deducted from the net profit of each tax year, intended to encourage mining companies to explore new mineral deposits or develop alternative resources. The subsidy rate is generally: 14%~22% Depletion allowances and royalties are two concepts that share the same fundamental nature yet are diametrically opposed. The only difference between them lies in this: royalties represent compensation paid by mining operators to the owner (the state) for mineral resource development, whereas depletion allowances are compensation provided by the state to encourage operators to carry out mineral exploration and development. This practice is also a common international convention.

　　 II. Major Issues Existing in the Current Mining Tax System

　　Actively adapting to the new normal of China’s economic development and proactively promoting reform of the mining tax and fee system first require a clear understanding of the current mining tax system’s underlying problems. The author now analyzes the main issues as follows:

　　( 1 1. The relationship between resource taxes and fees is confusing and unclear. First, the resource tax and resource compensation fee currently levied in China are both akin to royalties for the paid exploitation of resources abroad; from a tax perspective, this leads to the issue of double taxation. Second, the primary purpose of the mining tax system is to balance the interests among parties involved in mining development. However, tax and fee designers have attempted to link the resource compensation fee to the recovery rate of extracted minerals. As mining taxes and fees constitute part of a mining enterprise’s production costs, their imposition could actually reduce the recovery rate. Third, relevant regulations clearly state that the resource compensation fee, mineral rights usage fee, and mineral rights payment are intended to regulate the interests between the state as the owner of resources and the mineral rights holders. Yet in practice, the mineral rights payment actually regulates the interests between the state as a geological exploration investor and the mining developer, rather than those between the state and the mineral rights holders. Fourth, the mineral rights payment is levied only on mineral deposits explored with state funding—meaning that the payment is viewed solely as a return on the state’s geological exploration investment and is unrelated to the original value of the resources themselves. This implies that, while transferring the returns from exploration investments, the state also cedes part of its ownership rights over the resources.

　　( 2 ) The structure of resource taxes and fees is not entirely reasonable. First, the tax and fee standards for certain mineral resources, such as oil and gas, are relatively low. These low resource usage costs not only fail to promote the rational development and utilization of resources but also make it difficult to establish a scientific mechanism for determining resource prices. Second, the current fees for mining rights are generally too low (the highest fee for exploration rights is...). 500 Yuan / Square kilometer · The mining right usage fee for the year is: 1000 Yuan / Square kilometer · (Year) is one of the key reasons why speculators engage in circular speculation—focusing on hoarding rather than exploration and development—and driving up the trading of mineral rights. Third, compared with mining powerhouses such as Canada and Australia, China’s tax and fee structure lacks the institutional arrangements commonly adopted internationally—arrangements designed to identify new ore bodies and ensure a smooth transition as existing resources are being depleted. Fourth, the current rates of mining taxes (fees) do not reflect the inherent value levels of different resources. For example, the resource compensation rates for copper, diamonds, and granite are... 2% ; Uranium, tantalum, and geothermal are 3% ; gold, gemstones, and mineral water are 4% This compensation rate, which is inversely related to resource value and yet remains the same across different mineral types with vastly differing values, is neither reasonable nor scientific.

　　( 3 ) Resource tax and fee standards vary widely. First, according to statistical data from certain regions around the world, Arizona in the United States and Quebec in Canada have relatively low tax and fee burdens, at only 6.50% ; The tax burdens in British Columbia and Australia are, respectively, 9%、 10.50% , which is considered moderate; China’s average tax and fee burden is relatively high, at 12.70%[3] Second, the heavy tax and fee burden on China’s mining enterprises is also evident in the value-added tax. Mining enterprises have a high capital-intensity structure, and since mining companies are directly engaged in ore extraction—unlike other manufacturing and processing enterprises—they have extremely limited input taxes that can be deducted for their direct production of mineral products. Consequently, the vast majority of their output value must be treated as added value and subject to value-added tax. Third, the average rate of China’s resource compensation fee is... 2.31% Meanwhile, the royalty rate for similar rights abroad is 3%~8% (For example, China’s original oil and gas compensation rate was only 1% while overseas it reaches as high as 10%~16%[4] ), an excessively low tax and fee burden not only fails to match the scarcity of resources but also hinders the improvement of resource utilization efficiency.

　　( 4 1. There is a misalignment in the entities responsible for collecting resource taxes and fees. First, in some regions, government departments still determine resource compensation fees and mining rights payments through administrative or planned means—this is a typical practice of using administrative actions to substitute market mechanisms in regulating related interest relationships. Second, certain localities continue to illegally create various fee items (such as mineral product levies and security deposits), and even impose value-added tax on gold production enterprises. This not only imposes unnecessary burdens on mining companies but also tarnishes the image of the Party and the government. Third, the current resource taxes and fees are collected by different departments, and especially in terms of fee management, standards vary widely across regions, with some places even resorting to negotiated prices. This management situation lacks standardization, easily leads to rent-seeking and corruption, and fails to create an equitable competitive market environment for the industry. Fourth, the current mining tax system is incomplete and its administration is insufficiently standardized. This situation is closely linked to the fact that the government acts simultaneously as the representative of resource owners, the manager of resources, and—in some cases—directly intervenes in mining rights operations, thereby assuming multiple roles as owner, manager, and operator all at once.

　　( 5 2) The current method of levying resource taxes and fees is flawed. First, with the exception of oil, gas, and coal, the existing resource tax is levied based on quantity rather than value—meaning that mining companies’ tax burden is not linked to resource prices. This approach, to some extent, leads to resource wastage for minerals whose prices fluctuate dramatically. Second, using the recovery rate as a constraint on mineral extraction reserves also fails to achieve the desired effect. In fact, the profits generated from exploiting high-grade deposits while abandoning low-grade ones often far exceed the additional resource compensation fees paid due to lower actual extraction rates. Third, currently, only oil and gas are subject to a special excess profit tax, while other minerals experiencing sharp price surges or sustained high prices remain unregulated, allowing certain mining companies to reap enormous rents without bearing any corresponding costs. Fourth, the resource tax does not adopt different tax rates tailored to the varying extraction conditions, resource endowments, and production capacities across all stages of a mine’s life cycle, thereby weakening its ability to provide differential regulation. Fifth, the collection of resource taxes and fees does not take into account ecological compensation factors, resulting in resource-exporting regions not only failing to benefit from these resources but also suffering severe environmental damage—and even becoming prime examples of the “resource curse.”

　　( 6 1. The design objectives of resource taxes and fees are vague. First, resource taxes and fees do not cover resources such as water, forests, grasslands, and tidal flats within their scope of collection. This not only fails to adequately protect all societal resources but also undermines fair competition among market entities. Second, mining activities inevitably have negative impacts on the land rights holders’ land, property, and ecological environment in the resource-rich areas; yet the current mining tax system lacks clear regulations governing the balance of interests between those who benefit from resource exploitation—namely, mineral resource owners and mining investors—and the land rights holders themselves. Third, mineral resources represent a natural wealth jointly owned by present and future generations. However, in the current distribution and use of revenues generated by mineral resource owners, there is still a lack of effective mechanisms for balancing the interests between present and future generations regarding these resources. Fourth, most countries around the world typically refrain from levying value-added tax after imposing resource taxes and royalties on mining enterprises. In contrast, China not only imposes both resource tax and value-added tax simultaneously but also suffers from the problem of double taxation—charging both resource tax and resource compensation fees.

　　( 7 ) The resource tax and fee-sharing system is imbalanced. First, under the current mineral resource tax and fee-sharing system, the resource compensation fee (taking Fujian Province as an example) is divided between the central and provincial governments as follows: 50% and 20% The central and provincial governments each account for a portion of the mining rights usage fees and payments. 20% and 30% Second, the high proportion of mining taxes and fees concentrated in the central and provincial finances easily leads to fiscal difficulties in cities and counties that are major exporters of mineral resources. This not only hinders both the development and utilization of these resources and the protection of the ecological environment, but also undermines the sustainable development of resource-based cities. Third, the resource tax—being a local tax—is distributed based on tax registration rather than being truly collected at the place of resource extraction. As a result, local residents in areas where mineral resources are located not only fail to benefit from the development and utilization of natural resources, but also end up bearing the brunt of the ecological damage caused by mining activities. The existence of these problems, on the one hand, will lead to excessive surpluses in special funds allocated by the central and provincial governments, while, on the other hand, it leaves cities and counties that are major resource exporters lacking the necessary financial resources to address their economic and social challenges.

　　( 8 ) The mining tax system lacks industry-specific features. First, among general taxes, value-added tax has the greatest impact on the tax burden of mining enterprises; for mining industries (excluding oil and gas), the VAT rate is the same as that for other industrial enterprises. 17% However, since mining enterprises consume relatively few raw materials and semi-finished products in the production of mineral products, the input taxes they can offset are limited to auxiliary materials and fuels, thereby resulting in an actual tax burden for the mining industry that is higher than in other sectors. Second, although value-added tax is an indirect tax levied on top of the price, its tax rate effectively amounts to either directly raising or lowering mineral prices—and this impact will ripple through to affect the competitiveness of the mining industry. For this reason, most countries around the world impose only income tax on the mining industry, rather than value-added tax, in order to achieve tax fairness among different industries and enhance the mining sector's competitiveness. Third, the mining tax system fails to take into account the industry’s unique characteristics; it imposes income tax indiscriminately on mining enterprises, which hinders their efforts to engage in technological innovation and environmental protection, ultimately jeopardizing the sustainable development of the entire industry. Fourth, the resource tax lacks the function of compensating for the social costs associated with mining production. Individuals end up appropriating these social costs, while the tax system remains powerless to provide any compensation for them.

　 　III. Recommendations for the Reform of China’s Mining Tax and Fee System

　　To build a mining tax system that both aligns with China’s national conditions and is consistent with international practices, thereby promoting the sustained and healthy development of the mining economy, the author proposes the following reform recommendations in response to the aforementioned issues existing in the current mining tax system:

　　( 1 ) Perfect the functional positioning of resource taxes and fees. First, we should draw on the experiences of advanced mining countries and establish a tax system primarily based on mining royalties. This is not only necessary for safeguarding the state’s property rights over natural resources but also essential for aligning China’s mining tax system more closely with international standards. Second, in addition to reflecting their roles in regulating differential income, protecting resources, and promoting their rational use, the functional positioning of resource taxes and fees should also highlight their role in ecological and environmental protection (such as the “black lung disease tax” adopted in some foreign countries). Third, regarding the issue of double taxation between resource taxes and resource compensation fees, it is recommended that... 2014 Building on the consolidation of oil and gas, coal resource taxes, and resource compensation fees at year-end, we will accelerate the reform of the resource tax system. “ Eliminate fees and impose taxes. ” Scope of implementation. Fourth, given that the mineral rights usage fee is, in practice, a misnomer and no longer deserves to be part of the paid-access system, it should be restored to its original status as land rent. Furthermore, in line with practices in other countries, we should establish a mineral rights rental system. While appropriately raising the rental rates, we should also set up and refine a dynamic adjustment mechanism for mineral rights rents, thereby curbing mining companies’ tendency to hoard land without conducting exploration or development activities.

　　( 2 ) Reform the methods of resource tax collection and administration. First, building on the existing practice of levying resource taxes based on the value of oil, gas, and coal resources, we will further expand the scope of this approach to include other mineral types, while continuing to apply regionally differentiated tax rates, thereby enhancing the resource tax’s role in differential regulation. Second, we will introduce floating tax (fee) rates for mining taxes and fees—meaning that when mineral prices rise, the tax (fee) rates will be adjusted upward, thus increasing government revenue from these taxes and fees.