Gold miners warn VAT return will hurt sector
Mainland gold miners warn that the industry will suffer a blow if the government reimposes a value-added tax on the precious metal after a 14-year break.
Newspapers on the mainland last week reported that the Ministry of Finance, the State Administration of Taxation and the General Administration of Customs had agreed that the tax should be reimposed after the Beijing Olympics.
Wan Guoli, vice-secretary general of the China Gold Association, confirmed that the finance ministry had consulted gold miners and the industry group.
'We do not agree that the VAT should be brought back, as it is against the general practice of other countries,' Mr Wan said, adding that the tax would hurt the industry's profitability and development.
Research by the association showed that most countries, including major gold producers South Africa, the United States, Australia and Canada, do not have VAT on gold. The exceptions are South Korea and Vietnam. South Korea plans to scrap the levy in 2010.
'But it is still not certain whether the government will reimpose VAT on gold and if so, at what rate,' Mr Wan said.
Market observers said even within the government, there were different opinions on the tax and no consensus had been reached.
The People's Bank of China, which supervises the gold market, and the National Development and Reform Commission, the country's top economic planner in charge of the gold industry, are said to be opposed to the move on the grounds that it would restrict the industry's development.
'Resuming gold VAT will hit the sector hard, not only producers' profitability but also investment incentives,' said Zhao Jugang, board secretary of Henan-based Lingbao Gold.
Mr Zhao said he had heard talk of reimposing value-added tax but that his company had received no formal notice from the government.
Gold has been exempt from the tax on the mainland since 1994 while iron ore and coal are subject to a 13 per cent levy. The rate has risen to 14 per cent for higher-value-chain production such as smelting or processing, according to Heng Kun, a metals analyst at Essence Securities.
'The tax's reintroduction not only affects the profitability of the gold industry,' Mr Heng said. 'More importantly, it would affect investment incentives in the industry, especially the low-quality mines.'
Talk of value-added tax on gold had resurfaced in part because of surging prices of the yellow metal in the past few years that had created an impression gold mining had become a very profitable business, said analysts.
China, which became the world's largest gold producer last year, produced 129.09 tonnes of the precious metal in the first half of this year, up 5.63 per cent. Industry profit jumped 90.61 per cent to 6.61 billion yuan (HK$7.53 billion) on higher prices.