On 1 April, China will raise the mined taxes on rare earth minerals by between 10 and 120 fold.
The tax, announced on Friday through state media, will be used by the government to boost research on rare-earth processing, set up an environmental compensation fund and help build rare-earth reserves.
Rare earth minerals are a family of 17 chemical elements that are key to the production of specific components for technically advanced goods, such as rechargeable batteries and smartphones.
Taxes on mined light rare earths will go from 0.5 (.05p) yuan per tonne to 60 (£5.65), while medium and heavy rare earths will go from 3 to 30 yuan per tonne.
It is expected the taxes will drive small and medium companies out of business, or force them to merge with larger enterprises, state media reported.
In November, China was thought to hold 90 percent of worldwide production capacity of rare earth materials.
A tonne of neodymium, which is used to make high-tech magnets, doubled in price from 300,000 yuan at the end of 2010, to 600,000 yuan in March.