As expected, China’s Ministry of Finance and the State Administration of Taxation last week jointly unveiled the rates of the new resource tax on rare earths, tungsten, and molybdenum production which took effect May 1, 2015, replacing the previous rare earths export tariffs of between 15% and 25% that had been eliminated in order to comply with last year’s WTO ruling.

“The new resource taxes for light rare earths are set at 11.5%, 9.5%, and 7.5%, respectively in Inner Mongolia Autonomous Region, Sichuan Province, and Shandong Province, while for medium and heavy rare earths it is generally set at 27%. Moreover the new tax, is set at 6.5% for tungsten, and at 11% for molybdenum,” the ministry said in a statement on April 30th.

China’s official Xinhua News Agency commented that the new resource tax reform can be implemented to better protect those domestic rare earth resources by reducing the black market activity and the taxes will of course contribute to the overall Chinese economy.

“Currently, the resource tax of ion-absorption rare earth concentrate, was set by the regional governments. The tax rate was generally set in favor of the local interest. The rate in Guangxi and Fujian was set at 5,200 Yuan/ton, Hunan was 12,000 Yuan/ ton, Guangdong was 22,500 Yuan/ton and Jiangxi Ganzhou was 36,000 Yuan/ton. This resulted in intensified unfairness in the market.” The Ganzhou local taxation bureau complained in a report released last year. Experts say that the resource tax reform aims to bring a more fair and transparent market to the country, and said “Rare earth resource tax reform is an important step for establishing a standard and fair market environment under the overall background of resource production and trade regulatory reform.”

“To levy a new rare earth resource tax based on prices instead of amounts, will undoubtly push up the prices of these scarce minerals, which will help to improve resource utilization and efficiency. As well, the local revenue will also increase. A negative impact will be that the rare earths producers’ costs will rise. Therefore rare earth industry competitiveness will be weakened if we cannot upgrade the industry into the high end application field,” said the Research Policy office, under the Ganzhou City Government.

Rare earths, a class of 17 minerals, are some of the most sought after metals due to their military use and role in green technology like wind turbines and car batteries. China meets over 90 percent of world demand, but at the cost of much pollution.

According to rare earth experts, the new rare earth resource tax for light rare earths in Inner Mongolia Autonomous Region has been increased to about 3,714.5Yuan/ton from 1,200 Yuan /ton; while that of medium and heavy rare earths in Ganzhou’s ion-absorption concentrate has been increased to about 54,000 Yuan/ton from 36,000 Yuan /ton, respectively.

As a result, Ganzhou Rare Earth Association on May 6th published the latest prices for ion-absorption rare earth concentrates for early May, with a 10,000 Yuan/ton increase compared to the prices for April.

In an effort to keep the exports of the rare earth metals at a reasonable price and volume after the removal of export caps, the Beijing authorities have rolled out a series of polices to help the country’s rare earth sector in the past weeks.

However, in my view, the new rare earth resource tax could be a double-edged sword for Chinese producers. The authorities’ strict control over the total rare earth mining and production volumes has been an attempt to reduce resource development intensity in the past few years. Chinese rare earths producers are the world’s leading producer and exporter, yet more than 95% of producers have already reported losses for 2014 due to a rampant illegal rare earth production in the country, according to statistics from the Association of The Chinese Rare Earth Industry last month. Therefore, under the new rare earth resource tax, the only way for producers to ensure increased profits is to raise rare earth prices at present. China’s rare earths prices will continue to drive north as the taxes will have to be increased as the environmental costs are factored in.