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Wednesday, June 06, 2001, updated at 09:32(GMT+8)

Fuel Tax Scheme Delayed again

The continued collection of road maintenance fees suggests that the institution of China's long-expected new fuel tax will continue to be delayed.

Director Jin Renqing of the State Administration of Taxation said earlier this year that the country would institute the repeatedly delayed tax at an appropriate time this year.

But the announcement by the Ministry of Communications last week that motor vehicle owners must continue to pay the monthly road maintenance fees until the end of the year indicates that the new tax plan has been aborted once again.

The Chinese Government has made the elimination of unscheduled levies and the transformation of necessary fees and charges into taxes as one of the priorities of its fiscal reforms.

The proliferation of such fees, which are usually managed as "off-budget" income, has sparked a vast number of complains and complicated the fiscal operation of the State.

The Ministry of Finance has decided to choose the management of toll levies and other charges on vehicles as the area in which to make a breakthrough, because the problem of rampant levies is very serious in this area and the reform of this sector is regarded as being relatively easy.

In October, 1999, the Standing Committee of the National People's Congresspassed amendments to the country's Highway Law, paving the way for the institution of the fuel tax.

The fuel tax encourages cost efficiency, the use of clean fuel and technical upgrades, thereby helping the auto industry better prepare for international competition after China's pending entry into the World Trade Organization.

"But the high oil prices since March 1999 have delayed the implementation of the new tax," said Zhang Peisen, a senior researcher with the Taxation Research Institute under the State Administration of Taxation.

The international oil prices have risen from about US$10 per barrel in March 1999 to about US$28 per barrel at present, as a result of a reduction in oil supply.

The new tax cannot be implemented at this time, because the high oil prices and the relatively high tax rate would saddle users with an excessively heavy financial burden, Zhang said.

The fuel tax, combined with the value-added tax and the consumption tax, would account for more than 50 per cent of fuel prices, insiders have said.

"This will increase burden for those who frequently use vehicles including taxi drivers," Zhang said.

If the central government wants to keep taxi drivers' income level from falling, it will have to adjust the taxi fees, which will possibly push up the prices for other service items and consumer prices as a whole, he said.

However, some other experts at the Development Research Centre under the State Council said the high oil prices are just an excuse.

"Oil prices will never drop to the March 1999 level again," said a research fellow identified as Chen.

The conflicting interests of different ministries, as well as those of central and local governments are the major reasons for the delay, he said.

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The continued collection of road maintenance fees suggests that the institution of China's long-expected new fuel tax will continue to be delayed.

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