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China's Resource Tax 'Will Not Raise Oil Prices'

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

26 October 2011


Replying to questions posed by journalists, a joint statement by the Ministry of Finance and the State Administration of Taxation has confirmed that the extension nationwide of China’s resource tax should not affect domestic oil and gas product prices.

Initially, from June last year, China imposed a new resource tax on domestic sales of crude oil and natural gas in the western province of Xinjiang, and extended it to all of the western provinces last December. It was then announced earlier this month that the resource tax would be extended nationwide, with effect from November 1, 2011.

In addition, the resource tax had previously been applied per tonne of crude oil and per 1,000 cubic meters of natural gas sold, but that was felt to be too low given the large increase in oil and gas prices. It was considered that an ad valorem tax would be more appropriate, and the resource tax will now be charged at between of 5% and 10% of the sale value, rather than based on the quantity sold.

However, to the question of whether the imposition of the resource tax would increase the domestic sale prices of oil and gas products, both institutions replied that it would not, but might, instead, reduce the profits of the companies in the sector.

Domestic prices in China, it was said, are altered in relation to oil and gas international prices, which themselves move in response to such factors as global market supply and demand, the value of the US dollar and international speculation. There will therefore be no price relationship between the imposition of the resource tax and domestic product prices.

It was confirmed that the new tax is collected by local authorities, to be utilized for local development. Its extension is also part of China's efforts to encourage energy conservancy and limit environmental damage.

TAGS: environment | tax | economics | business | fiscal policy | China | oil and gas | tax rates

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