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FEATURE: Inner Mongolia up coal tax for cleaner growth

Chinese market sources interpreted the latest coal resource tax increase in North China’s Inner Mongolia, the country’s largest coal mining region, to 10% starting October 1 as the region’s endeavour to reduce heavy reliance on coal and to promote eco-friendly economy, and at the same time it is in line with Beijing’s national energy consumption evolution towards clean sources.

The new coal resource tax, up from the original 9%, will be in place until December 31 2021, and 10% is the maximum Beijing allows to charge, China’s Ministry of Finance (MoF) stated in a release on November 12, confirming at the same time that the autonomous region will remain the tax on crude oil and gas unchanged at 6%.

Higher tax may lead to eco-friendly economic growth

“The higher tax may serve the government’s guidance on a healthier and cleaner economic development, as Inner Mongolia has been heavily reliant on its coal resources,” a Shanghai-based analyst said.

Over January-September, Inner Mongolia produced 757 million tonnes of raw coal, accounting for 27.7% of the country’s total output, and last year, the region’s tax revenue from coal mining and washing industry grew 12.9% on year to Yuan 62.5 billion ($8.9 billion), or a quarter of its total tax revenue, among which, coal resource tax revenue totalled Yuan 18.1 billion, or 76% of the region’s whole resource tax revenue.

“Higher tax will help with local authority’s government income, but more importantly, it is a signal to show the local authority’s intention to ease its heavy leaning on coal for economic growth,” a Beijing-based analyst agreed.

Higher Index not to weigh much on local coal miners

Inner Mongolia is not the first to raise its coal resource tax, as Shaanxi, the third largest coal production province in Northwest China has already raised the coal resource tax to 9% from the original 6% since the start of 2019 for the mining operations in Yulin, so as to “narrow the tax gap between Yulin and other neighboured coal mining regions,” a MoF notification in December 2018 stated.

An official from a coal mine in Yulin confirmed, adding that the tax is paid monthly on their coal sales revenue.

Inner Mongolia’s coal resource tax, after the adjustment, is higher than the prevalent 8% on the coal miners in North China’s Shanxi – the second-largest coal-mining province in the country, though it “will not add too heavy a burden on the coal suppliers, as the cost of coal mining in Inner Mongolia has been low,” a second analyst in Shanghai pointed out.

Inner Mongolia is rich with low sulphur and premium-quality coal reserves and many mining operations, being open-pit, are with great advantages in cost compared with mines in other major coal mining provinces such as Shanxi where most coal mines are underground, he added.

As of November 15, despite the tax increase, the price of 5,500 kcal/kg and 1% or lower sulphur coal in Ordos of Inner Mongolia was Yuan 355/tonne EXW and including the 13% VAT, as against 5,500 kcal/kg and 1.2% or lower sulphur coal in Datong of Shanxi at Yuan 430/t EXW and including 13% VAT, with the former being down Yuan 10/t from end of September.

Besides, tax reliefs or preferential policies have been in place in Inner Mongolia, on the other hand, to support local miners with limited coal resources, to wash the raw coal, or to adopt cut-and-filling, a safer but more costly mining method, Mysteel Global understands.

As for the tax relief on coal washing, it ranges 65-93% of the taxation, according to a notification by Inner Mongolia’s government in March 2015.

The new tax will be applied to both coal wash plants and coal miners, and as before, coal producers with its own mining and washing plants will be charged only once for the processed coal if the raw feedstocks are from its own mining operations, Mysteel Global understands.

Inner Mongolia’s move coheres with Beijing’s energy evolution

Inner Mongolia’s decision to raise the tax is also in line with China’s nationwide drive to shift towards cleaner energy with less carbon emission, as Beijing has set the target to reduce coal consumption in all energy demand to 58%, lift natural gas in power generation to 10% and control energy consumption within 5 billion tonnes of standard coal by 2020, Mysteel Global understands.

Over January-October, China’s thermal power generation grew 1.1% on year, or slower than the growth of total power generation at 3.1% on year, according to the official data.

In 2014, Beijing revised the taxation on a number of mineral resources and changed the calculation base to value from volume to better discipline the mining industry and to reduce the burden on the mining companies, and as for coal resources, the tax range was set at 2%-10% with individual provinces and regions to pick up the rates according to their own actual situations, Mysteel Global understands.

At present, Shandong province in East China, the country’s sixth largest coal production base, will be with the lowest coal resource tax of 4%, effective December 1 2019-November 30 2020.

Written by Sean Xie, xiepy@mysteel.com

Edited by Hongmei Li, li.hongmei@mysteel.com