New Tax On Chinese Oil Refiners Goes Largely Unnoticed

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

05 April 2006

China’s Ministry of Finance has stealthily begun collecting a special tax on income derived from the sale of locally produced crude oil exceeding $40 per barrel, according to a statement by the China Petroleum & Chemical Corporation, also known as Sinopec, Asia's largest oil refiner.

The special oil income levy will have 5 levels and will be calculated and charged according to progressive ad valorem rates.

Under the system, crude oil sold at $40 to $45 per barrel (inclusive) will be taxed at 20%; from $45 to $50 at 25%; from $50 to $55 at 30%; from $55 to $60 at 35%; and over $60 at 40%.

The details of the new tax, which went into effect on March 26, only became widely known when Sinopec published details of its annual results on Monday. The government began collecting the tax on April 1.

The levy will be calculated on a monthly basis and collected on a quarterly basis.

Officials have been reported as saying that revenues from the new tax would be used to subsidize sectors hurt by rising oil prices.

However, Sinopec warns that company expenditures will increase and may adversely affect the company’s financial results if international crude oil prices continue to trade above $40 dollars per barrel.

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