China Mulls Tax Relief For Oil Firms

by Mary Swire, Tax-News.com, Hong Kong

11 February 2009

China is considering increasing the windfall tax threshold for the country's oil companies in a bid to stimulate the sector.

The move, which is being proposed by the National Development and Reform Commission, would see the current windfall tax threshold increase from USD40 per barrel up to USD60.

The windfall tax measure was first introduced in 2006, and is levied when the price of crude oil reaches USD40 per barrel on a sliding scale between 20% and 40%. Currently, the 40% rate is reached when the price of crude oil exceeds USD60 per barrel.

If the measure is approved, it is hoped that it will significantly reduce the tax burdens of China's three largest oil companies – PetroChina, Sinopec and CNOOC – which paid substantially higher amounts of tax last year when oil prices hit record highs.

The move would be part of a wider bailout plan for the oil industry, which could involve the implementation of temporary subsidies for large oil firms and adjustments to the rates of consumption tax, and tax rebates.

Further comment from the country's State Council is expected soon.

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