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China – State Announces Consumption Tax Increase On Oil Products.

15 January, 2015

 

Legal News & Analysis – Asia Pacific – China – Tax

 

China’s finance and taxation authorities have announced that consumption tax on oil products will be raised from 13 January to support counter-pollution initiatives and the new energy sector.

 

The tax on products including petrol and lubricating oil will be increased to 1.52 renminbi (CNY) (about 25 US cents) per litre from CNY 1.4, according to figures from China’s Ministry of Finance (MOF) and the State Administration of Taxation, reported by the state-run Xinhua News Agency.

 

Xinhua said the levy on diesel, jet fuel and fuel oil will be increased from CNY 1.1 (about 18 US cents) per litre to CNY 1.2. “This will be the third increase in as many months, following one on 29 November and another on 13 December,” Xinhua said.

 

The retail prices of gasoline and diesel will be cut by CNY 180 (USD 29) and CNY 230 (USD 37) per tonne “after taking the higher tax into consideration” said Xinhua, quoting a separate statement from the National Development and Reform Commission.

 

According to Xinhua, this is China’s 12th retail fuel prices cut since July 2014, “as the government reacts to lower global crude oil prices”.

 

However, the director of the research institute for fiscal science at the MOF, Liu Shangxi, told Xinhua that the fall in oil prices “is bad news for the new energy sector” and could lead to reduced sales of new-energy cars.

 

Liu said China’s energy consumption accounted for about 22.4% of the world’s total in 2013, “but its energy consumption per gross domestic product was 3.5 times of that of the US and seven times that of Japan”.

 

Xinhua said fuel tax and pricing reform measures began five years ago “and have featured consumption tax hikes and the introduction of a pricing system more closely linked to the international market”.

 

“Consumption tax was first imposed in 1994 on consumer goods with a high energy cost and high pollution to make production and consumption more environmentally-friendly and promote sustainable growth,” Xinhua said.

 

China’s move is in line with several other countries including Russia, Australia, New Zealand and France that have raised oil product consumption tax since 2012 “to ensure green development”, Xinhua said.

 

In 2011, China’s State Council (cabinet) said it aimed to increase the amount invested in environmental protection measures by 40% over the next five years. The country needs about 3.4tn renminbi (USD 548bn) in environmental investment before the end of 2015, the State Council said in a blueprint on pollution reduction.

 

Xinhua said last August that figures from the China National Petroleum Corporation showed China to be the world’s biggest energy consumer. “China’s dependency rates on imported oil and natural gas came in at 58% and 31.6% respectively in 2013.”

 

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For further information, please contact:

 

Jason Collins, Partner, Pinsent Masons

jason.collins@pinsentmasons.com

 

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