China Raises Hydrocarbon Resource Taxes

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

12 August 2005

China’s Ministry of Finance and the State Administration of Taxation announced on Tuesday that the government has raised taxes on oil and natural gas resources with effect from July 1, 2005.

The “2005-115” notice sets out the different taxes for different oilfields. Qinghai Oilfield has been slapped with the highest increase, from 8 yuan per ton to 30 yuan per ton. On the other hand, the famous Daqing Oilfield, which is suffering from depletion problems, the tax on natural resources has been raised from 8 yuan per ton to 14 yuan, the lowest increase.

For natural gas firms, an additional two yuan is being charged to those who pay 10 yuan or more per ton. An additional five yuan is charged to those that pay less than 10 yuan per ton.

The increases, clearly driven by soaring international oil prices, are the first for 12 years, but leave China's resource taxes far lower than those in most other countries.

It is unclear whether the country's third-largest oil firm, CNOOC, which has just failed in its attempt to buy US producer SoCal, will be subject to tax increases. Taxation of CNOOC - which was not mentioned in the circular - is administered by a separate government body, the China Offshore Oil Tax Bureau.

China was the world's second largest consumer of petroleum products in 2004, at 6.5 million barrels per day (bbl/d). China's oil demand is projected by EIA to reach 14.2 million bbl/d by 2025, with net imports of 10.9 million bbl/d. China has generated 40% of world oil demand growth over the past four years, with year-on-year growth of 1.0 million bbl/d in 2004.

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