Water usage should be taxed, and the tax structure for oil, natural gas and coal be 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 would 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 waste-water 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 levied according to the amount of production. For example, coal-mines are taxed according to their output.

The committee said this system should be changed so that taxes reflect the prices of those resources.

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 ($1.8-3.9) per ton from 12-14 yuan ($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 economically backward western region.

In its report, the NPC committee also said "the plan for levying a tax on house ownership is being studied".

The Ministry of Construction is also mulling the introduction of a property tax, according to its vice-minister, Liu Zhifeng.

While it is necessary to levy such a tax, the government must be cautious to ensure that poor people's interests are not damaged, said Liu Xiahui, a researcher at the CASS.

"Not all houses should be taxed," he said. "Those owned by the low-income earners should be exempt."

(China Daily 03/14/2007 page5)