Coal miners given reprieve as tax reform proposal is put on hold
Beijing has put on hold for at least three months a long-expected tax reform for coal mining firms that will result in a higher levy, amid worries of rising inflation, state media reported.
The State Council, the central government's cabinet, had not approved a proposal submitted recently by mainland finance and taxation authorities, the Shanghai Securities News said yesterday without citing any source of the information.
'This does not mean the tax increase and reform will not be put into practice, it's just being delayed,' it quoted an unnamed source.
On Friday, the National Business Daily reported that Beijing would launch the tax overhaul and increase over the weekend.
Under the tax reform, first proposed in 2006, the basis for computing the resource tax would be changed to value from volume, effectively boosting the government's coffers as domestic coal prices have risen about fivefold in the past six years.
Miners now pay a tax of 2.50 yuan (HK$2.84) to 3.50 yuan per tonne, or about 1 per cent of their revenue.
Sun Yaohai, director of the National People's Congress' Regulation Office of Environmental and Resources Protection Commission, was quoted by China Business News in November as saying Beijing wanted to lift that to 3 per cent of revenue.
Speculation on the imminent tax change sent coal stocks tumbling on Friday, as some observers suggested the resource tax levy could be raised to as high as 10 per cent of revenue.
But investors yesterday barely reacted to the reported delay in the reform, with China Shenhua Energy climbing 3.01 per cent, China Coal Energy rising 2.02 per cent and Yanzhou Coal Mining surging 5.61 per cent in Shanghai. The Shanghai Composite Index rose 0.81 per cent.
In Hong Kong, shares of the three coal majors fell between 0.87 per cent and 4.01 per cent. By comparison, the Hang Seng Index sank 3.16 per cent.
'We believe the increased rate might not be too far from 3 per cent,' wrote Nomura Securities analyst Donovan Huang in a research note. 'That said, it is difficult to predict government actions.'
He said tight supply because of the state price cap could allow coal distributors and even miners to pass on the cost increase. Only miners are subject to the price freeze.
'We have long believed that coal price control will not work due to [miners'] fragmentation and [multilayered] intermediaries,' Mr Huang wrote, adding that coal prices at Qinhuangdao port east of Beijing surged 10.9 per cent after the price cap was imposed on June 19.