China will further tighten regulations over oil product consumption tax
starting from March 1, according to an updated announcement posted on the
website of the State Administration of Taxation late Monday.

The announcement aims to strengthen consumption tax regulations for oil
products including gasoline, gasoil, jet fuel, naphtha, solvent oil, lubricant
oil and fuel oil, SAT said.

The key difference from the previous version of regulations was the SAT
will require refineries and oil product sales companies to report their deals
in a special tax issuance module under a new system allowing the local tax
authority to collect consumption tax on products properly by monitoring the
whole transaction chain of the product from producers to end users.

The move is aimed at closing possible loopholes that allowed for
consumption tax evasion, market sources said.

China currently levies a consumption tax of Yuan 1.52/liter (23
cents/liter or Yuan 2,110/mt) on gasoline, and Yuan 1.2/liter on gasoil.

“The new regulations are very detailed, considering practically every
process of the transaction,” a market source in eastern China said.

“This means it’s almost impossible for oil product sellers to get a
gasoline invoice for blended barrels with free-taxed products, such as mixed
aromatics, alkylates and so on.”

“They will have to pay consumption tax when selling gasoline to
state-owned oil retail stations, which account for around 70% of China’s oil
product market share,” the source said.

Affected by the new regulations, 92 RON gasoline, which meets national
Phase 5 emission standards, jumped around Yuan 500/mt to around Yuan 7,200/mt
Tuesday in southern Guangdong province, a trader with PetroChina’s Guangdong
sales branch said.

Gasoline prices in the eastern province of Shandong showed little change
Tuesday, according to a trader with Linjin Petrochemical, one of major
independent refineries in the region.

“Unlike southern China — the largest consumer place for blending
gasoline in Shandong is mostly produced by refineries, so its price was not
affected much by the new regulations,” another oil trader in southern China
said.

–Staff, newsdesk@spglobal.com; Oceana Zhou, Oceana.zhou@spglobal.com

–Edited by Jonathan Fox, jonathan.fox@spglobal.com

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