Natural Resource Taxation in the PRC

Date: March 2011
Type: Papers and Briefs
Country:
Subject:
Series: Observations and Suggestions

Description

  • The currently piloted ad valorem natural resource tax in Xinjiang Uygur Autonomous Region (Xinjiang) offers a welcomed possibility of increasing the provincial revenue share from oil and gas extraction projects. Hence, it is recommended to implement the ad valorem natural resource tax nation-wide.
  • Oil and gas are internationally traded and offer robust reference points that could be used when linked to the extracted natural resource. It is proposed the establishment of a deemed sale indexing mechanism for ad valorem natural resource taxes.
  • The oil and gas sector in the PRC is highly integrated and one company is often responsible for extraction, refining and selling of the final products. For that reason, the risk of transfer pricing is high. It is recommended transfer pricing is tightened and brought in line with internationally standards.
  • Compared with other countries, the natural resource tax of 5% in Xinjiang is on the lower end. It is suggested to examine oil and gas taxation standards in other countries to determine to what extent the natural resource tax could be increased.