China introduces resource tax in Xinjiang

08:46, June 03, 2010      

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China's government Tuesday introduced a new tax on sales of crude oil and natural gas in the western Xinjiang Uygur Autonomous Region, the Ministry of Finance (MOF) said Wednesday.

The 5 percent tax is aimed to increase revenue for the local government of the resource-rich Xinjiang, and is part of a support package for the region unveiled at a central work conference held in Beijing last month.

The new measure, a shift from current taxes based on output, is also a move to save natural resources by raising the consumption cost. The government intends to impose the tax nationwide after regional trials.

Thick oil, high condensation oil and high sulphur natural gas are taxed less at 3 percent, while oil recovered by tertiary methods is taxed at 3.5 percent.

Jia Kang, director of the Institute of Fiscal Science under the MOF, said the new policy was a big step forward in the country's reform of resource taxation.

The reform has been postponed twice in recent years. It was first delayed in 2007 on concerns that it would help speed up price hikes and add inflationary pressure to an overheating economy. The second delay in 2008 was caused by fears of hurting enterprises amid an economic slowdown resulting from the fallout of the financial crisis.

The introduction of the tax came at the "best time" as China had seen gradual and steady recovery from the economic slowdown and had not seen "apparent" inflationary pressures, said An Tifu, an economist with the Renmin University of China.

Experts said the trial reform would pave the way for a nationwide rollout.

It would also improve the pricing mechanism for resources products and economic restructuring, and increase tax revenues for local governments, Jia said.

China previously imposed a volume tax of up to 30 yuan (4.39 U.S. dollars) per tonne of crude sold and up to 15 yuan per thousand cubic meters of natural gas sold.

Xinjiang was rich in crude oil and gas, with output of crude oil at 25.18 million tonnes last year, said Professor Wang Yudai, of the Party School of the Xinjiang Uygur Autonomous Region.

The amount accounted for about 13.3 percent of China's total crude output, which stood at 189.49 million tonnes in 2009.

The new tax policy would increase returns on crude sales by 4 billion to 5 billion yuan, bringing up to about 6.3 billion yuan to the local government fiscal revenue, Wang said.

Chen Yuenian, official from the Xinjiang taxation bureau, said the increased revenue could be used to improve people's livelihoods and environmental protection.

President Hu Jintao said last month that resources development should be directly linked to the welfare of the local people.

However, there are concerns that the new tax would erode income of oil and gas producers, including the country's two biggest companies, PetroChina and Sinopec.

The two companies were not commenting Wednesday.

A report from Guotai Junan Securities said PetroChina's crude output in Xinjiang accounted for 17.92 percent of the company's total and the figure for gas was 35.36 percent.

If the tax was levied from the start of this year, the company's pre-tax profit would drop by 2.21 percent in 2010, with the price of crude oil at 80 U.S. dollars per barrel, according to the report.

Wang said the trial run of the resources tax would add to costs for oil and gas companies, which would probably in turn increase prices downstream.

However, the new measure would help improve management of companies and reduce waste, and be conducive to energy conservation and environmental protection in Xinjiang, Wang said.



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