Water usage should be taxed, and the tax structure for oil, natural gas and coal reformed to favor conservation, lawmakers said.

The Financial and Economic Committee of the National People's Congress (NPC) included the suggestion in its review of the government budgets proposed by the Ministry of Finance during the annual NPC national session.

The committee did not offer any suggestions about how the water tax should be levied, but analysts agreed that it could be part of a fee-to-tax reform for usage.

In its current form, the rate covers a water fee, resource fee and wastewater treatment fee.

"The move will regulate water use through taxation and promote the economical use of this resource," said Han Meng, a researcher at the Institute of Economics of the Chinese Academy of Social Sciences (CASS).

The committee also suggested that the system for taxing oil, natural gas, and coal be reformed. Taxes on these resources are currently levied according to the amount of production. For example, coalmines are taxed according to output.

In recent years, the prices of energy resources like oil have soared while China's resource tax has remained largely unchanged. The resource tax on oil, for example, did not change until 2005, when it was raised to 14-30 yuan (US$1.8-3.9) per ton from 12-14 yuan (US$1.5-1.8) per ton.

"The suggested change will better reflect the market value of the resource," said Han.

Resource-rich provinces have been advocating a resource tax reform that would revalue the prices of resources.

"The new system, if approved, will help save resources through economic means," said Han.

The national policy advisors at the Chinese People's Political Consultative Conference (CPPCC), meanwhile, said more attention should be paid to the interests of resource-rich provinces, which provide the raw materials that fuel the national economy, but "have not been adequately rewarded.”

Cai Jiming, a member of the CPPCC, told his fellow delegates that more revenue from resource taxes should stay in local coffers to help develop the economies of these provinces, which are largely in the underdeveloped western region.

(China Daily March 14, 2007)