China will change the resource tax imposed on coal to value-based from present volume-based from December 1, Premier Li Keqiang said on September 29 at an executive meeting of the State Council.

The exact rates will be determined by provincial governments within a stipulated scope, without giving further details, said a notice published on the government’s official website.

Various coal-related taxes and fees will be cleared to ensure no increase of miners’ burdens, and the illegal collection of taxes and fees will be severely punished, the State Council said.

The State Council said it would scrap the coal price regulation fund, cancel the environmental compensation levy among others, and ban all the illegal coal charges and fees levied by local governments below the provincial level.

The reform will benefit resource-rich regions and promote coordinated regional development and the rational exploitation of resources, the notice said.

China has already implemented similar reforms in the taxation of crude oil and natural gas production since November 2011, with a rate of 5%.

Industry insiders expected the tax rate to vary between 2% and 10% depending on the region, as proposed by the China National Coal Association (CNCA) to the State Council in December last year.

China presently collects 8 yuan/t of resource tax on coking coal, and 2-4 yuan/t on other coal varieties, and the levy varies to some extent in different regions.

If the tax rate is also set at 5%, coal producers will need to pay 8-15 yuan/t more than the volume-based taxation at current market prices, industry insiders said. They hoped the government can strictly clear irrational levies.

Market sources also said the move may further aggregate cost burdens of small and medium-sized coal producers, forcing them to shut operations. This could help rebalance the oversupplied domestic market.

However, some insiders said a lot of work still needs to be done, due to varied regional situations and specific standards should be set up to facilitate implementation of the new tax.

In response to deteriorating domestic coal market, main production provinces, like Inner Mongolia and Shanxi, etc. have rolled out a series of measures since early last year to scrap or suspend levy of some taxes and fees to save struggling miners.

Changes to the resource tax have long been on the government’s agenda and are aimed at encouraging the more efficient use of coal, which has been blamed for China''s severe air pollution problems.

Earlier this year, Wang Jun, director of the State Taxation Administration, said China was in the right time to reform coal resource tax, and this was also good for resource and energy-saving and the country’s fight against pollution.

However, as domestic coal miners are struggling with bearish demand and low prices, one senior official with the CNCA said early last week that the association had proposed to the State Council to defer the reform on coal resource tax to save heavily-burdened miners.