China To Further Tighten Rare Earth Noose With Tax Permits

by on

MetalMiner welcomes guest contributor Rahul Jalan, a Chennai-based advisor in Rare Earths for Beroe Consulting India Pvt Ltd. Jalan tracks the global rare earth supply chain and analyzes global procurement developments to help develop state-of-the-art procurement solutions for the company. Beroe specializes in providing procurement intelligence and advisories for a broad swath of industries.

MetalMiner readers undoubtedly know by now that the Chinese government has implemented a series of policies over the past few years to regulate rare earth metals production, stabilize prices, and control exports.

Some of these policies were primarily aimed at internal control, whereas few were to do more with influencing global supply and prices, thereby aligning with China’s long-term goals of overall industrial policy.

This was begun when they implemented the first policy in 2006 by decreasing rare earth exports, citing internal demand and environmental reasons. Later, it was followed with series of other policies, such as an increase in minerals tax, a special invoicing system, separate production quota allocation, and mine and plant consolidation.

China, with its latest May 2012 announcement on new tax permits, has confirmed that it will continue to create new policies in a bid to regulate overproduction and collect extra revenue.

More than a year after imposing a tax on rare earth minerals, China is considering another tax on companies producing rare earth minerals to curb illegally smuggled minerals. Furthermore, there is also a possibility of China introducing a REE (Rare Earth Element) trading platform for open trading on the basis of a mechanism set by Chinese Enterprises.

REE Tax Permits

China has started to allocate value-added tax permits to rare earth companies in Sichuan and Inner Mongolia in a bid to regulate both overproduction of rare earths and smuggling activities.

Reserves in these areas are relatively centralized and easy to supervise when compared to the reserves in Fujian, Guangdong and other regions, which are more scattered.

A REE tax permit is required for the production of light rare earths, including concentrates and isolation oxides. This permit is seen as an initial step taken by the government to control overproduction, illegal mining, and environmental violations. The Chinese government will be able to control rare earth supply to a certain extent, by forcing rare earth producers to sell their finished products based on production and export quota allocations.

If the rare earth company is found to be selling more than the allocated quota, then the company would be liable for the under-reporting of concentrates or obtaining output from elsewhere and selling illegally. Thus, the rare earth prices will depend on the percentage of tax levied, but it is almost certain that any such move will lead to a spike in prices.

Another impending driver of rare earths prices: new REE trading platforms. Check back in for Part Two.

–Rahul Jalan

Leave a Comment

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.