China Refined Oil Tax Crackdown to Be Pushed Back to May

China’s State Administration of Taxation (SAT) has pushed back to May the implementation of an online system designed to combat tax evasion in oil products markets.

"The implementation time of the notice will be adjusted from March 1, 2018 to May 1, 2018," SAT said on February 28.

It is unclear what has caused the delay, but it is likely to be technical.

SAT plans a web-based platform that issues sales invoices equivalent to the volume of purchase invoices. This, it hopes, will close a loophole whereby fuel retailers, which often do not issue invoices for all the fuel they sell to drivers. Blended oil companies have proliferated in recent years, producing gasoline from untaxed mixed aromatics, and using the surplus invoices generated by retailers to create a false audit trail. China’s consumption taxes are set at RMB 2,110/mt on gasoline and RMB 1,411/mt on diesel, and both products incur a 17% value-added tax charge.

The prospect of a tax crackdown spooked gasoline blenders in China and led to a drop in exports of European mixed aromatics to China. At least 39,000 b/d was booked to load from Europe in January — the last month in which cargoes departing Europe could reach China before the March 1 implementation of the new system. No cargoes have been booked for China in February or March, compared with an average 40,000 b/d in 2017. There was also an increase in gasoline prices in China.

Small refineries and blended oil companies now appear to have a two-month reprieve. That may be bad news for state-owned refineries. Sinopec plans to increase gasoline yields at the expense of diesel this year, it said in early February, a plan likely to have been based on expectations that the tax crackdown would tighten supply of gasoline.

The tax system is almost certainly coming, even if it is delayed.