China to Reduce Gasoline Consumption Tax?

SCI99

2019-05-28

China to Reduce Gasoline Consumption Tax?

International crude oil prices have increased a lot since the beginning of this year, so it some market participants hear that China may reduce the consumption tax of gasoline and diesel or adjust the pricing mechanism to reduce the gasoline and diesel prices. But SCI holds that high crude oil prices will not cause changes in China’s gasoline and diesel retail pricing mechanism or in the consumption tax.

First, it is the right of governments to make changes in the pricing mechanism and the consumption tax, so only the information from governments are reliable.

Second, changes in the consumption tax must show governments’ attitude on the consumption of gasoline and diesel. China began to levy the gasoline and diesel consumption tax from 1994, and the gasoline consumption tax was only RMB 0.2/liter then. After that, the gasoline and diesel consumption tax were raised greatly. In 2015, the gasoline consumption tax was raised to RMB 1.52/liter, and the diesel consumption tax was raised to RMB 1.2/liter. That was the last adjustment until now. The main reason for the increase in the consumption tax is to reduce the consumption of fossil fuels and to reduce the environmental pollution. Therefore, the governments are not likely to cut the consumption tax to encourage citizens to use gasoline and diesel. Some local governments ever helped shipping companies, logistics companies and taxi companies to reduce the fuel costs when oil prices were high. It is not necessary to reduce the consumption tax to face high fuel costs for governments.

In addition, the National Development and Reform Commission issued planning to promote the sustainable development of the economy. According to the planning, local governments will be encouraged to replace fuel vehicles with electric vehicles. Therefore, it is clear that the governments will cut the consumption of conventional fuels but promote the consumption of new energy.

Third, China has issued some measures to reduce taxes this year, and such measures will support the healthy development of China’s companies. But the measures will cause a reduction in governments’ tax revenue, and China is facing heavy pressure in citizens’ welfare of housing, education, medical and so on. Therefore, from this view of point, it is not likely for governments to reduce the consumption tax of gasoline and diesel. China’s domestic consumption of gasoline and diesel was around 248 million tons in 2018, so any reduction in the consumption tax will cause a great reduction in national tax revenue.

Finally, SCI holds that it is actually not necessary to make sure whether the consumption tax will be adjusted. Just because of the rumors, opportunities are seen in the market and some other market participants are facing difficulties in marketing.

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