Existing tax and fee system


On April 13 2017 the State Council promulgated the Plan for Mineral Resources Ownership Benefit System Reform with a view to transforming China's fiscal regime for the grant of mineral resources rights in an upcoming reform of the oil and gas upstream sector.(1) The reforms include the following:

  • A reconsideration of the grant of mineral rights – the government intends to change the reimbursement of previous investments in oil and gas exploration and exploitation into a fee for the grant of oil and gas rights.(2) This change would apply to all state grants of mineral rights and would represent the state's ownership interest in all minerals.
  • A reconsideration of the rental costs for oil and gas blocks – the government previously charged a use fee for mineral exploration and exploitation rights, which was fixed and paid annually on the basis of coverage and unit area. This will now be integrated into the possession fee for mineral rights. The mineral rights possession fee can be adjusted in accordance with the price fluctuation of mineral products and economic development needs.
  • A tax imposed on the exploitation of mineral resources – the government will continue with the ongoing reform of the resources tax. The government intends to apply an ad valorem taxation method to most mineral products. The resources tax would be calculated based on the resources price, which corresponds to oil and gas supply and demand.
  • A reconsideration of security deposits for the restoration of mining environments – the government intends to incorporate restoration security deposits into mine environment restoration funds. Such an arrangement would encourage mineral business entities to fulfil their responsibilities regarding mine restoration.(3)

Existing tax and fee system

Before the promulgation of the Plan for Mineral Resources Ownership Benefit System Reform, business entities involved in the exploration and exploitation of mineral resources were required to pay for:

  • the reimbursement of previous investments in mineral exploration and exploitation;
  • a user fee for mineral exploration and exploitation rights;
  • a resources tax;
  • mine environment restoration security deposits; and
  • other general taxes and fees.

The existing fiscal regime for mineral resources was implemented as a part of the centrally planned economy system, which resulted in the following problems:

  • ambiguous taxes and fees;
  • confused economic and legal relationships between resource owners, administrators and investors;
  • redundant charges; and
  • the collection of fixed taxes and fees whose amount is determined independently of the mineral resources market.

The existing mineral resources tax and fees system is not in line with the proposed oil and gas sector reforms for establishing a more competitive mineral rights granting process. The existing system has also been inadequate in facilitating the state's collection of ownership dues based on the revenues of mineral rights holders.


The Plan for Mineral Resources Ownership Benefit System Reform's primary purpose is to streamline the tax and fees system in China's mineral resources sector.

Based on the plan's stipulations, mineral resource taxes and fees are now more specific in their nature and legal relationship, in order to avoid the redundant fee charges in the current system and clarify the taxes and fees to be borne by resource developers. Highlights of the plan include the following:

  • The plan specifies the nature of fees as proceeds for the granting of mineral rights. Grant proceeds of mineral rights reflect the reimbursement of the investments made in the exploration and development of resources. They will be collected through competitive tendering or through a bidding process. Given that the quality of oil and gas blocks can vary according to their geological reserves, grant proceeds will be flexible based on the actual reserves of the blocks.
  • The plan provides that the rental fee for possession of mineral rights should be adjusted based on market conditions and economic development needs. Before the plan was announced, pursuant to the Administrative Measures on Registration of Blocks for Exploration of Mineral Resources and Administrative Measures for Registration of the Mining of Mineral Resources, mineral rights holders paid mineral exploration and exploitation rights user fees annually, based on the coverage area of the relevant blocks. However, this fee has been criticised as being too low, and for allowing mineral rights holders to retain large blocks at a low rental cost for speculation purposes. This situation has led to:
    • the proliferation of resource monopolies;
    • a lack of market competition; and
    • the less efficient utilisation of mineral resources.

The plan proposes a reasonable rental cost system for mineral rights based on the price fluctuations of mineral products and economic development needs. This arrangement would be conducive for the determination of appropriate rental fees for mineral rights based on block reserves and economic conditions and would ensure that mineral rights holders timely and effectively explored and exploited mineral resources.

  • The plan reforms the resources tax system. According to the Mineral Resources Law, "the State has ownership over all mineral resources". In many countries (eg, the United States) the owner of mineral resources would charge a royalty as a major consideration for granting oil and gas leasehold interests or mineral rights. A 'royalty' represents an owner's interest in scarce and exhaustible mineral resources. In China, before the resources tax reform, competent authorities charged a mineral resources compensation fee. Since 2015 the Ministry of Land and Resources, the Ministry of Finance and other authorities have formulated and issued:
    • the Circular on Effectively Strengthening the Levying of Mineral Resources Compensation and Corresponding Issues on Implementation; and
    • the Circular on Comprehensively Promoting the Reform of Resource Tax.

The plan reduces the rate of mineral resources compensation for all resources to zero and implements a system of charging ad valorem resource tax. This arrangement integrates mineral resources compensation into a single resources tax system – to unify the levying, administration and use of resources tax proceeds. To an extent, the resources tax is similar to the royalty system used in other countries; however, the royalty system is based on contractual profit sharing, while the resources tax is a sovereignty tax. The resources tax calculation does not fully reflect the ownership interests of the state as owner of the mineral resources, which is yet to be rectified.

  • The plan replaces mineral environment restoration security deposits with a mineral environment restoration fund. Mine environment restoration security deposits serve as security to guarantee the completion of mineral environment restoration. Security deposits can be refunded if mining entities complete mineral environment restoration work. However, the amount charged for mineral environment restoration will be taken from a company's oil and gas sales revenue according to a specific ratio. Therefore, this arrangement will internalise environment restoration costs. In the interim, the mineral environment restoration fund will be managed by competent authorities to facilitate the efficient utilisation of funds and enhance ecological and civilisation protection.

The Plan for Mineral Resources Ownership Benefit System Reform also aims to readjust and reallocate mineral resources proceeds between the central and local governments, and to maintain a balance between the two. Stipulations relating to this include the following:

  • The ratio of grant proceeds for mineral rights for the central government and local governments has been adjusted from 2:8 to 4:6;
  • The ratio of rental for the possession of mineral rights allocated between the central government and local governments has been set at 2:8; and
  • The tax revenue of mineral resources is categorised as local fiscal revenue.

According to Ministry of Finance official estimates, the implementation of the aforementioned mineral resource ownership benefit system would increase local fiscal revenue by up to Rmb3.37 billion.(4) The system would encourage local authorities to adopt a more rational policy for the exploitation of mineral resources based on long-term aims regarding the preservation and development of resources. This is in contrast with the past tendency of local authorities to grant mineral resource rights for short-term gains.


The Plan for Mineral Resources Ownership Benefit System Reform proposes – among other measures – changes to the collection of rental fees for possession of mineral rights and the establishment of mineral environment restoration funds. Such amendments would improve the existing mineral resources tax and fees system. Although there is room for improvement, such as addressing the lack of a royalty concept, the plan should be welcomed as a move towards a more reasonable fiscal regime.

The term 'mineral resources ownership benefit' is a generic term, which refers to all of the following:

  • grant proceeds of mineral rights;
  • rental for possession of mineral rights;
  • resource taxes; and
  • mineral environment restoration funds.

The amount of grant proceeds could be difficult to ascertain during the bidding for exploration rights, and could be set too high, thus restricting new commerce. Equally, this amount could be set too low if the exploration results in a significant commercial discovery.

A more reliable system would be to utilise royalty-based calculations, which would harmonise the interests of the state owner and the bidder, as happens in a joint venture. Such improvements could be included in future amendments to the resource tax and fees system.

For further information on this topic please contact Libin Zhang or Jinfan Zhuang at Broad & Bright by telephone (+86 10 8513 1818) or email ([email protected] or [email protected] ). The Broad & Bright website can be accessed at


(1) 'Equity benefit' is a term coined by the Chinese authorities to summarise the current mineral resource taxation and fees system, which is different from the royalty system in other countries.

(2) The "reimbursement fee for mineral exploration and exploitation right" is paid for the reimbursement of prior investment in blocks containing mineral deposits discovered by the state, at the state's expense.

(3) The Plan for Mineral Resource Equity Benefit System Reform.

(4) "Interpretation to the Plan for Mineral Resource Equity Benefit System Reform", Xinhua net, April 20 2017.