China to clamp down on firms evading fuel oil consumption tax: document

[SINGAPORE] China is looking to clamp down on companies that are importing fuel oil but declaring it as a bitumen mixture to avoid paying consumption taxes, a government document obtained by Reuters showed on Wednesday.

About 270,000 to 540,000 tonnes of this bitumen mixture are being imported per month, traders estimated. China charges 1.2 yuan per litre for fuel oil consumption while levying no such tax on the use of bitumen. "They blend bitumen into heavy fuel oil and heavy crude and declare it as bitumen (but use it as fuel oil). This has been going on for the whole of 2014 at least," said a trader with a Chinese refiner, who did not want to be named as he was not authorised to speak with the media.

China has formed a committee comprising nine ministries to tackle the issue from January, the government document showed.

It will also crack down on firms selling gasoline as tax-free petrochemical aromatics, the document added. Gasoline carries a consumption tax of 1.52 yuan per litre.

Fuel oil is used as feedstock by small independent refiners known as "teapot refineries" who find it difficult to import crude, prices for which stayed above US$100 per barrel for most of the past four years before a recent plunge below US$50.

China imported 15.79 million tonnes of fuel oil over January to November last year, according to customs figures.

However, bitumen mixture imports are expected to come down as a sharp 60 percent drop in oil prices from highs in June 2014 makes overseas purchases of refined products cheaper.

Blending of fuels to circumvent taxes is not unusual in China. In late 2010, small refiners and independent fuel dealers imported power kerosene, a blend which was not subjected to consumption taxes at the time and could be easily turned into diesel. The practice led to detention and fines for two traders.

Private firms imported an estimated 1.7 million tonnes of biodiesel in 2013 on tax and trade incentives, displacing local diesel sales. This prompted the Chinese government to start levying consumption tax on imports of biodiesel and some types of kerosene from January, 2014.

REUTERS