China’s consumption tax on oil may be high, but environmental issue also matters

By Hu Weijia Source:Global Times Published: 2016-2-18 0:08:13

A widely circulated post by China National Petroleum Corp (CNPC), the country's largest oil and gas producer, alleged that total taxes and dues accounted for 48 percent of the domestic refined oil price in China, a factor that is the main cause of the big oil price gap between China and the US.

The article sparked heated discussion online Wednesday, with many wondering why such high taxes are imposed in China, and how a widening oil price gap will affect the international market, especially after the authorities announced Monday that there would be no adjustment in domestic retail oil prices despite the recent fluctuations in global oil prices.

It is understandable that the article sparked debate and concerns, even though some industry observers questioned the accuracy of the data in the CNPC paper.

However, the logic behind the high taxes needs to be analyzed, and it is overly simplistic to say that China's tax burden is too heavy.

China imposes relatively high taxes on oil products partly due to the country's natural resource endowment. China has abundant reserves of coal but lacks oil and gas resources. With the continuing growth in oil consumption, China's dependence on imported oil exceeded 60 percent last year, sparking concerns about the country's energy security. So it is natural for the government to impose a high tax on oil products and encourage the consumption of other forms of energy.

Second, China currently faces increasing pressure from environmental issues as the smog problem is becoming worse. The country's cabinet last year published guidelines for improving the environment, vowing to reduce carbon dioxide emissions and increase the share of non-fossil fuels in primary energy consumption to around 15 percent by 2020.

Therefore, consumption tax currently accounts for more than half of the total taxes and dues levied on most oil products.

The consumption tax in China is mainly applied to products like luxury goods and consumption that increases pollution, so the high consumption tax can be seen as part of the effort to control the growth of oil consumption and boost the green economy.

It is not easy to adopt a similar strategy in the US, which is known as "the country on wheels," because gasoline is such a daily necessity. But some other countries like Japan also impose high taxes on oil products and use the tax revenue to develop public transport. China's taxes on oil products are at the intermediate level in the world.

Even though the oil consumption tax and current oil price setting mechanism may cause a widening price gap between China and overseas markets, it is unlikely to have a large impact on the international market or cause an import surge in China thanks to factors such as import tariffs, which lift the prices of imported goods.

The author is a reporter with the Global Times.


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