Jun 05, 2012

Southern Mongolia: China Intends A New Tax To Regulate Overproduction

To tighten control over exports and production of valuable metals

Below is an article published by Mine Web:

China is looking to allocate a value-added tax (VAT) permit to rare earth companies in a bid to regulate overproduction of the mineral and to collect revenue. By issuing the special VAT slip, the government will have full control over which companies are exporting rare earths and what quantities they can export.

The Ministry of Industry and Information Technology in China is also considering a national inventory reserve of rare earths and will look at strategic buying and selling, where producers buy up surplus supply when prices fall and sell when prices rise.

China exports more rare earths than any other country in the world, accounting for more than 90% of the world's demand. This commanding position has been achieved despite the fact that the Asian major currently has only about 30% of global rare earth reserves.

Though the percentage of VAT is, as yet, unclear, traders say it is bound to lift prices of rare earths out of China. Once instituted, the tax would be almost impossible to avoid. The government's move would also mean strict control and supervision over the whole process, from production to sale.

Currently, the tax rate of mined light rare earths is 60 yuan per tonne, while that of medium and heavy rare earths is set at 30 yuan per tonne.

The new tax will allow plants with a production capacity of 1,000 million tonnes of light rare earth concentrates, to only sell around 450 to 500 million tonnes of rare earth oxides, that can be produced from the concentrates. If the company sells more, it would amount to underreporting of concentrates or obtaining output from elsewhere and selling illegally.

Though China has enforced a `mandatory production plan' for rare earths since 2007, the new tax would help the government tighten control over exports and production of the valuable metals. 

Jia Yinsong, the Director of Rare Earths Office of the Ministry of Industry and Information Technology has been quoted by news reports as saying that according to the 2011 quota, the export volume for rare earths should have been 18,000 tonnes, but the actual amount was around 36,000 tonnes. This would mean that nearly half of the rare earths production was smuggled. 

To curb the tendency, the government is all set to issue the new and special VAT.

In the case of the national reserve, the ultimate goal is to create a rare earth trading platform, where China expects legitimate miners to participate. The government is said to be conducting a series of talks with the country's rare earths enterprises to initiate the process. A detailed project plan towards the creation and management of the national reserve will soon be formed.

Reports indicate that rare earth companies in Sichuan and Inner Mongolia are to be the first companies to be allocated the VAT permits, in a bid to regulate the overproduction of the mineral. Companies that have received notification from the government said the tax permit will be issued by the State Administration of Taxation this week.

Rare earth reserves in Sichuan and Inner Mongolia are relatively centralised and easy to supervise, while the reserves in Fujian, Guangdong and others regions are scattered. Reports indicate that the initial steps in Sichuan and Inner Mongolia could well result in the authorities extending VAT to the whole country.

"The special invoice has a two-dimensional code, and will be needed by any producing company who would want to continue operations,'' an official with China Min[e]metals Rare Earth Company told newswire agencies.

He added that the VAT system would help the government control overcapacity, illegal mining, resource drainage and pollution of mines in the rare earth industry.

Jiangxi province, which has the country's largest reserves of heavy rare earth metals, will also have separate controls on exploration. ``The volume of this year's rare earth exploration in Jiangxi will be equal to that of the previous year, but we will concentrate more on the sustainability of the industry's development,'' Hu Xian, director of the department of land and resources of Jiangxi province told newswire agencies.

Li Shanle, an official with the bureau of industry and information technology in Jiangxi province said the VAT introduction was an important regulatory step. The tax will cover mining and smelting, separation and distribution of rare earths. While it will control illegal mining, the new tax will also differentiate between light rare earths and heavy rare earths. 

The booming rare earth industry in China has attracted many firms. Aluminum Corp of China signed a cooperation framework agreement on March 12 with Guangxi Nonferrous Metals Group and Grirem Advanced Materials Company. Together, they are to establish a venture developing rare earth resources in South China's Guangxi Zhuang autonomous region.