China Stops Tax Rebates for Exports of Gasoline, Naphtha

BEIJING, Aug 31 Asia Pulse - China will stop tax rebates for exports of gasoline and naphtha for the rest of this year to ensure domestic demand is met.

The country will scrap the preferential tax policy for exporters of motor and aviation gasoline and naphtha from tomorrow to December 31, the State Administration of Taxation said in a statement published on its website yesterday.

Gasoline exporters in China now enjoy a 11-per-cent tax rebate and the tax deduction for exports of naphtha, a raw material for the production of ethylene, stands at 13 per cent.

Industry analysts said the government move aims to secure domestic supply of refined oil, which in previous weeks fell short in certain areas of South China such as Guangdong Province.

"The gap between domestic refined-oil prices and the international level has driven some of the country's small oil dealers to focus on the overseas market, where they can learn more," said Zhu Hongren, deputy general director of the Bureau of Economic Operations under the National Development and Reform Commission (NDRC).

In previous years, China enjoyed a surplus in refined oil and naphtha production and encouraged exports of the two energy products. But the situation has changed as the capped refined-oil pricing system is devastating the country's refining business. Also, the rapid expansion in ethylene production by oil majors such as PetroChina and Sinopec has pushed the demand beyond supply, said Gong Jinshuan, a senior analyst with China Petroleum Corp (CNPC), the parent company of PetroChina.

China exported 3.34 million tons of gasoline in the first half of this year, up 31.6 per cent, but refined-oil imports dropped 20.9 per cent for the six-month period, show statistics from China Customs.

Meanwhile, the country exported some 1.2 million tons of naphtha from January to June, a rise of more than 200 per cent year-on-year, the source said.

The Chinese Government controls the domestic prices of refined- oil such as gasoline and diesel in order to stave off inflation.

The lack of a market pricing mechanism in the country's refined-oil sector has led to much lower prices of gasoline and diesel compared with the global level, although the NDRC has increased the prices of refined oil thrice this year as global crude prices kept rising. Crude oil surged to a record high of US$70.80 a barrel on Monday in after-hours electronic trading on the New York Mercantile Exchange. Prices are 61 per cent higher than a year earlier.

Cao Xianghong, senior vice- president of Asia's largest oil refiner Sinopec, told reporters on Monday at a petrochemical conference that the government-controlled refined-oil prices are some 1,700 yuan (US$209) per ton less than the global average.

"A reformed pricing mechanism for refined oil to close the gap with the world crude prices is imperative," Cao said.

Deng Yusong, a deputy division chief at the Development Research Centre of the State Council, said the country should have more market mechanisms in the refined-oil sector, and further increase the domestic prices of refined oil as crude prices remain high. But subsidies should be given to economically-disadvantaged groups such as farmers and the public transportation sector, he added.

(XIC)

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