China to Increase Fuel-Oil Consumption Tax From 2009

By Winnie Zhu

Dec. 19 (Bloomberg) -- China, the world's second-biggest oil user, will increase the fuel-oil consumption tax paid by refiners and importers by eightfold to conserve energy use.

The tax will be raised to 0.8 yuan (12 cents) a liter from 0.1 yuan starting next year, while the levy on naphtha, solvents and lubricants will increase to 1 yuan a liter from 0.2 yuan, according to a statement on the government's Web site today.

Crude oil's 75 percent plunge from July's record has eased import costs, giving China room to implement energy-tax reforms first proposed about 10 years ago. The government is increasing consumption taxes on petroleum products such as fuel oil to spur energy-saving, cut pollution in cities and reduce oil imports.

The fuel-oil consumption tax increase will largely offset the import tariff cut announced yesterday. China will reduce the fuel-oil import levy to 1 percent from 3 percent starting 2009, the Finance Ministry said.

China Petroleum & Chemical Corp. and PetroChina Co., the nation's two largest refiners, are the country's biggest importers of fuel.

Fuel oil is also used by China's small, privately run refineries, mostly in the southern manufacturing hub of Guangdong, as a raw material to make gasoline and diesel.

The import tariff cut will save users about 50 yuan a ton while the consumption tax increase will boost costs by about 800 yuan a ton, Bizer Tang, chief analyst at Guangzhou Twinace Petroleum & Chemical Corp, the nation's largest private fuel-oil importer, said yesterday.

The government said earlier this month the gasoline consumption tax will rise to 1 yuan a liter from 0.2 yuan and the levy on diesel will climb to 0.8 yuan a liter from 0.1 yuan.

China is also cutting ex-factory fuel prices for the first time in almost two years to take advantage of crude-oil's slump.

To contact the reporter on this story: Winnie Zhu in Shanghai at wzhu4@bloomberg.net