China Proposes Reform on Fuel Tax

8 December 2008

Xinhua. The government of China on Friday released a draft of a proposed reform of fuel tax and pricing, and is soliciting public comment on it through 12 December. The plan, scheduled to take effect on 1 January 2009, would eliminate six fees now charged for road or waterway maintenance and management, but would increase fuel consumption taxes.

Gasoline taxes will increase from 0.2 yuan (~US$0.03) per liter to 1 yuan (US$0.15) and diesel taxes from 0.1 yuan per liter to 0.8 yuan (US$0.12). (Equivalent to US$0.57 per gallon gasoline and US$0.45 per gallon diesel).

The tax is reflected in the pump prices and isn’t an additional increase to the retail prices, said a joint statement by the National Development and Reform Commission (NDRC), Ministry of Finance, Ministry of Transport and State Administration of Taxation. The proposed tax is lower than the level in the European Union and also in the neighboring countries and regions, it said.

The draft said China’s domestic crude oil prices should be set directly in line with world prices, but the link should be controlled and indirect for refined petroleum prices. There will be a ceiling on pump prices as part of the plan. The government said it will continue to properly regulate domestic pump prices to prevent the negative impacts of huge fluctuations in the international oil prices on the domestic market.

China has been considering fuel tax reform for many years, and the idea of a fuel tax was raised as early as 1994. Both officials and economists said the plunge in global oil price presents a window of opportunity for this reform.

Even with oil prices tumbling so much, Chinese drivers are paying much more than those in many other countries because domestic fuel prices have been unchanged since June. Government-set prices are changed only infrequently.