Economy

China to implement resource tax in western regions

(Agencies)
Updated: 2010-07-07 11:15
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China, the world's second-biggest energy consumer, plans to impose a new tax on the extraction of coal, oil and gas in the country's western areas as part of a push to develop the region's economy.

The country will change the resources tax in the region to a price-based rather than volume-based levy, the government said in a statement on its website, citing comments by Premier Wen Jiabao at a meeting with officials yesterday. The shift will boost tax revenues for the local economy, analysts said.

President Hu Jintao has pledged to double investment in the western province of Xinjiang. The country's western areas shall be a base for energy production and processing of natural resources, the statement cited Hu as saying yesterday.

"This is part of a wider trend to move some of the profits of companies like PetroChina Co to poorer parts of the country so they can benefit," Wang Aochao, head of China research at UOB-Kay Hian Ltd, said by telephone from Shanghai.

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The central government will invest in "key projects" in those areas to improve the economic well-being of the local people, Wen said in the statement, without identifying the provinces. Additional policies will also be implemented to support the development of the region, he said.

China imposed a 5 percent price-based resources tax on crude oil and natural gas produced in Xinjiang, effective as of June 1, the Ministry of Finance said last month.

"The adjustment of the resources tax will undoubtedly lead to higher tax costs for energy producers led by PetroChina and China Petroleum & Chemical Corp," Grace Liu, an energy analyst with Guotai Junan Securities Co, said by telephone from the southern city of Shenzhen.

PetroChina fell 2.1 percent to HK$8.57 in Hong Kong trading today, while China Petroleum, known as Sinopec, dropped 2.7 percent. That compares with the 1 percent decline in the benchmark Hang Seng Index.