China to cut VAT for struggling coal producers: state financial paper

[BEIJING] China is considering plans to cut the value-added tax (VAT) paid by coal companies from 17 per cent to 13 per cent to support a sector stricken by slowing demand, the official China Securities Journal said on Friday.

The 17 per cent tax was imposed on coal miners in 2009 following a rapid increase in prices, and industry officials have complained that no corresponding cuts have been made to the VAT rate despite a market downturn that began in 2012.

The newspaper, citing unnamed industry sources, said the Ministry of Finance is now considering a cut, but no timeframe was given.

Premier Li Keqiang told parliament last month that China would strive to reduce its dependence on coal, a major source of pollution, but would also take action to "turn around" the sector, which employs nearly 6 million people nationwide.

More than 70 per cent of China's coal enterprises suffered losses last year, the result of a rapid decline in prices over the last two years as well as a chronic supply glut.

The China Securities Journal said the operating income of large-scale coal miners reached 397 billion yuan (S$87.98 billion) in the first two months of this year, down 8.3 per cent from the same period in 2014.

The government has tried to curb the inflow of cheap imports and cut production, but prices have continued to slip.

Benchmark Qinhuangdao thermal coal is down more than 13 per cent so far this year, after dropping 15 per cent over the whole of 2014.

Coal producers could also be squeezed further by the decision this week to trim the tariffs paid to coal-fired power producers. Mine officials have already complained that their power customers were driving prices down further in anticipation of the price cut.

REUTERS