China raises consumption tax on oil products

Drivers fuel their vehicles at a gas station in Changchun, capital of northeast China's Jilin Province, Jan. 12, 2015. (Xinhua/Xu Chang)

China's finance and taxation authorities on Monday announced that consumption tax on oil products would be raised from Tuesday.

The tax on gasoline, naphtha, solvent oil and lubricating oil will be increased to 1.52 yuan (about 25 U.S. cents) per liter from 1.4 yuan. The levy on diesel, jet fuel and fuel oil will be increased from 1.1 yuan per liter to 1.2 yuan, according to the Ministry of Finance (MOF) and the State Administration of Taxation (SAT).

This will be the third increase in as many months, following one on Nov. 29 and another on Dec. 13.

The retail prices of gasoline and diesel will be cut by 180 yuan and 230 yuan per tonne after taking the higher tax into consideration, the National Development and Reform Commission announced in a separate statement.

This the 12th retail fuel prices cut since July 2014, as the government reacts to lower global crude oil prices.

Proceeds from the higher taxes will mainly be allocated to counter-pollution initiatives and the new energy sector, according to the MOF and the SAT.

However, experts warn that the drop in oil prices is bad news for the new energy sector. For example, new-energy cars will see reduced sales, said Liu Shangxi, director of the research institute for fiscal science at the MOF.

China's energy consumption accounted for about 22.4 percent of the world's total in 2013, but its energy consumption per gross domestic product (GDP) was 3.5 times of that of the United States and seven times of that of Japan, according to Liu.

Fuel tax and pricing reform measures began five years ago, and have featured consumption tax hikes and the introduction of a pricing system more closely linked to the international market.

Consumption tax was first imposed in 1994 on consumer goods with a high energy cost and high pollution to make production and consumption more environmentally-friendly and promote sustainable growth.

Over ten countries including Russia, Australia, New Zealand and France have raised their oil product consumption tax since 2012 to ensure green development.