Summary of Key Points
Recently, the Ministry of Finance and the State Taxation Administration issued a notice adjusting the preferential policies for urban land use tax for energy and resource enterprises in sectors such as electricity, coal, mining, and building materials. The tax exemption for certain lands (e.g., power plant ash dumps, coal gangue mountains) will be changed from being completely exempted to being subject to half the usual tax rate from September 1, 2026, to August 31, 2027, and then to the full tax rate starting from September 1, 2027. At the same time, some lands for specific purposes will continue to be exempted from taxation (e.g., railway lines outside power plant areas, safety zones for coal enterprises' explosive storage facilities). This move reflects the state's effort to standardize tax incentives, adapt to economic changes, and increase fiscal revenue while promoting more efficient land use.
Detailed Analysis
How have the preferential policies changed?
Previously, many types of land owned by energy companies were exempt from the urban land use tax, including ash dumps for coal-fired power plants, land used for oil pipelines, gangue mountains where coal waste is stored, mining areas in mines, and tailing ponds. The new policy will be implemented in two phases:
- Transition period (September 1, 2026 – August 31, 2027): These exempt lands will now be taxed at half the usual rate.
- Full tax period (starting from September 1, 2027): There will be no longer any tax exemptions, and the full land use tax will apply.
In simple terms, lands that were previously free of tax will gradually become subject to taxation in the future.
Why is this adjustment being made?
The change is not a sudden abolition of preferential policies but is driven by two main reasons:
- Preferential measures have become outdated: The exemptions were granted in the early years to support the development of these industries, but now that these industries have matured, continuing them may no longer be fair.
- Standardizing taxation and promoting land conservation: The national 14th Five-Year Plan emphasizes the need to standardize tax incentives. Additionally, the purpose of the land use tax is to promote the rational use of land. Without exemptions, companies will be more motivated to use land more efficiently, as they will have to pay for any waste they generate.
- Increasing fiscal revenue: In 2025, the revenue from the land use tax was 255.1 billion yuan, and in the first half of this year, it was 140.8 billion yuan. The adjustment is expected to increase this revenue, helping to alleviate financial pressures.
Which preferential policies will remain?
The notice specifies eight types of lands that will continue to be exempt from taxation:
- Railway lines and road areas outside power plant premises.
- Land used for safety zones around coal enterprises' explosive storage facilities.
- Railways and roads outside coal enterprise premises, as well as parks and green spaces open to the public.
- Other similar public, safety-related, or non-productive lands.
The reason for these exemptions is straightforward: these lands are not directly used for profit generation. They serve essential purposes such as ensuring safety (safety zones around explosive storage facilities) or providing public services (parks), so they should continue to be exempted.
What are the implications for companies and the government?
- For companies: The cost of operating will increase. For example, a coal-fired power plant that previously did not have to pay tax on its ash dumps may now face additional costs in the millions each year. Companies will need to plan ahead, such as optimizing land use to reduce unnecessary land occupation.
- For the government: Revenue from the land use tax will increase. The exemption for certain lands will be phased out, and the additional revenue generated will help local governments (since the land use tax is a local tax) fund public services.
What is the land use tax?
The land use tax is a fee that companies (or individuals) must pay when using urban land. It has been in place since 1988 and is calculated based on the area of the land, with rates ranging from 0.6 yuan to 30 yuan per square meter, varying by region. For instance, if a company uses 1,000 square meters of land and the local rate is 10 yuan per square meter, it would have to pay 10,000 yuan annually.
Previously, due to the special nature of the energy industry, many related lands were exempt from this tax. With the new policy, these lands will now be subject to taxation.
Conclusion
This adjustment represents a targeted optimization of the government's tax incentives. It is neither a complete abolition of support for these industries nor a continuation of outdated policies. For companies, it means adapting to higher costs. For the government, it aims to standardize taxation, promote land conservation, and increase fiscal revenue, achieving multiple benefits. It also shows that tax policies are not static but are adjusted according to economic conditions.