China to introduce fuel tax at 50% very soon

Shanghai, November 19 (Gasgoo.com) China will soon move ahead with its long plans for a fuel tax, said xinhuanet.com today, citing a senior researcher close to the country's energy policy makers. The fuel tax is likely to be levied at a rate of about 50% as of the year end.

"The announcement will come very soon," Han Wenke, director general of the Energy Research Institute of National Development and Reform Commission, told the state media. "The government has repeatedly said that it will look for an appropriate time to start levying the fuel tax. Now this time has come," he added, saying this year end may be the best time for introducing the fuel tax.

The fuel tax will be imposed at on gasoline and diesel at the retail level, replacing the current practice of collecting road tolls. The fuel tax plan has long been delayed for many years due to opposition from some interest groups in China. Highway construction has depended on road taxes. Farmers have been seen as one group that would be hurt by the shift in taxation as they do not pay road tolls for agricultural machinery.

China's state-regulated fuel prices were below international pump prices for years, but the slump in crude oil prices in the last few months has made China's retail prices comparatively high, giving the government an opportunity to cut prices and introduce a fuel tax without upsetting motorists. Crude oil has fallen below $55 a barrel this week, more than 60% below the peak of $147 hit in July.

The tax would be above 1 yuan ($0.147) a liter, and December this year or January 2009 would be a good time to roll out the change, said Jiang Kejun, an NDRC Energy Research Institute member involved in formulating the fuel tax scheme. He said the government would likely cut retail pump prices before introducing the tax.

An auto industry analyst with China Securities Co Ltd also believes the fuel tax will not have a big negative impact either on the industry or the national economy. He said the government, while likely charging about 50% as fuel tax, will lower retail gasoline prices considerably and abolish road tolls.