China included lubricants in the list of petroleum products hit with a consumption tax on April 1 and adopted a new tax of 20 to 40 percent on domestic crude sold for more than U.S. $40 per barrel. Observers say the windfall tax on crude is part of the countrys effort to overhaul oil pricing and will prompt price increases for refined products, including base oils.
In mid-March, Chinas Ministry of Finance announced a consumption tax on various wood products, luxury items and certain oil-based products, including lubricants. The tax on lubricants, naphtha and solvents, effective April 1, is 0.2 Yuan RMB per liter (U.S. 2.5 cents), and the tax on aviation and fuel oil is 0.1 RMB per liter.
At the same time, the government said it would collect only 30 percent of the tax on naphtha and solvents, and would not collect the aviation oil taxes for now. A week after announcing the consumption taxes, the ministry said there is no timetable for the fuel oil tax levy, leaving lubricants as the only petroleum category subject to the full tax.
On April 4, Sinopec, one of Chinas three government-owned integrated oil companies, posted a notice at its web site announcing that the Ministry of Finance had imposed a special oil income levy on income derived from the sale of locally produced crude oil which exceeds U.S. $40 per barrel. The tax, which went into effect March 26, starts at 20 percent on crude selling for $40 per barrel, and rises to 40 percent on crude priced over $60 per barrel.
According to a China Daily report posted April 5 at the governments web site, www.gov.cn, the tax is part of the central governments efforts to overhaul its oil pricing regime, and will lead to another price increase for refined products.
The windfall tax is bad for CNOOC, mildly negative for PetroChina and neutral for Sinopec, China Daily quotes one analyst as saying. Another analyst says some proceeds from the tax – estimated at 20 billion RMB (U.S. $2.5 billion) from the three companies at todays crude prices – will go to subsidize refiners. Refiners have complained of the disparity between crude prices above $65 a barrel and the government-set cap on prices for finished products.