MercoPress. South Atlantic News Agency

China to increase oil and sales tax (5 to 10%) to reduce consumption

The tax should also help boost poor provinces revenues (Credit AP)

China will expand a tax on oil and natural gas sales to the entire country as of November first to try and reduce consumption. The tax will be 5-10% of sales, the State Council said Monday.

A 5% experimental resource tax was introduced in the western province of Xinjiang in July last year, with revenues going to the local government.

The move is seen as an attempt to reduce the fast-growing nation's dependency on resources. But it's also as a way for China to boost revenues for provincial governments.

“China's oil and gas sector is still monopolized by state-owned companies which have enjoyed good profitability,” said Wang Aochao, from UOB-Kay Hian in Shanghai.

“This new tax system will shift profits from companies to governments in poorer provinces”.
Crude oil and natural gas sales nationwide will be subject to between 5% and 10%, the State Council said. It also said sales of rare earth ores and coking coal would be subject to sales tax.

At the moment, China's resource tax is calculated based on volume of production, instead of sales value. This keeps local government, where the resources are produced, from benefiting from surges in energy and commodity prices. However, the tax on coal will remain based on volume.

Mr Wang said this was because the main coal producing provinces, such as Shanxi, are already quite wealthy. “So the new regime is for coking coal and rare earths to reflect the scarcity of those resources”.