China's fuel blenders, independent refiners to feel the squeeze from new tax rules
By Chen Aizhu and Florence Tan
BEIJING/SINGAPORE, Jan 17 (Reuters) - China's fuel blending
companies and independent refineries will bear the brunt of new
tax rules that will close loopholes that allegedly allowed them
to sell fuel without paying consumption taxes.
The rules address a long-held complaint by China's
state-owned oil companies that the privately owned refiners and
blenders have grabbed market share from them by undercutting
their prices through tax avoidance. Increasing their tax
compliance may reduce the profit margins for the refiners and
Starting on March 1, fuel dealers and producers will be
required to log on to a new national system for issuing invoices
for all transactions of refined fuel, the State Administration
of Taxation (SAT) said last week in a policy document.
The regulations are the most concrete steps the central
government has taken to clamp down on the alleged illicit trade
of invoices and tax evasion by the independent refiners and
blenders, according to interviews with five refinery and fuel
"SAT hopes this will put an end to invoice fraud that has
helped blenders and independent refiners avoid paying the tax
and sell their products at a discount," said Michal Meidan, an
analyst at consultants Energy Aspects.
China's consumption tax is around $38 per barrel for
gasoline and $29 for diesel. The rules also cover other products
such as aviation fuel, naphtha, lubricants and fuel oil.
The blenders allegedly import blendstocks that do not fall
under the tax. These include a petrochemical known as mixed
aromatics, used to raise the octane level of gasoline, and light
cycle oil, a residue product from fuel oil upgrading that is
similar to diesel.
The companies are alleged to sell the mixed aromatics
blended with gasoline, or light cycle oil with some diesel,
using invoices purchased from the black market that show the
cargo is entirely aromatics or light cycle oil instead of fuel.
This can be sold for less since the cargo avoids the tax.
"The policy will have immense impact on the players, not
only Chinese local blenders but also Singapore-based blending
stock suppliers," said a senior trader with a blender based in
Guangdong province. "Blenders may not necessarily die but
margins will narrow significantly. Some may be forced to change
China brings in a combined 20 million tonnes of the two
products a year, according to estimates by two traders familiar
with the market.
This week, buyers are increasing their orders for mixed
aromatics supplies from Singapore to get deliveries in before
March, said a shipping source who tracks the product flows.
The new invoicing system will track the history of each fuel
transaction by tracing the product code and volume to determine
whether it has paid the consumption tax, said a fuel manager
"It will deal a huge blow to blenders by stemming the source
of illicitly traded invoices, or making the cost of these
invoices very high," said Li Yan, an analyst with Longzhong
Information Group based in Shandong province, China's hub for
Independent refiners are expecting lower margins from the
new rules as well. The plant owners are alleged to have sold
gasoline and diesel fuel marked as other products such as
transformer oil or raw white oil to avoid the taxes.
"It will end the era of excessive margins in the
longer-run," said a manager with an independent plant based in
Dongying in Shandong province.
(Reporting by Chen Aizhu in BEIJING and Florence Tan in
SINGAPORE; Editing by Christian Schmollinger)
First Published: 2018-01-17 12:36:03
Updated 2018-01-17 12:54:30
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