China to raise crude product consumption tax

China will raise the consumption tax on crude oil products beginning Saturday, to help cut emissions and boost green economy.

It is the first adjustment since the previous increase in 2009, the country's top finance and taxation departments jointly announced Friday.

The consumption tax on gasoline will rise from 1 yuan ($0.16) to 1.12 yuan per liter while that on diesel from 0.8 yuan to 0.94 yuan per liter, according to the Ministry of Finance (MOF) and the State Administration of Taxation.

The measure will take effect on Saturday.

The tax adjustment will offset the impact from the crude oil price drop in the international market, as analysts estimated fuel costs for drivers are likely to remain flat after the move.

The National Development and Reform Commission, China's top economic regulator, announced on Friday after fine-tuning the tax that it will maintain retail fuel prices at the current level, reversing market expectations for the ninth price cut since July.

The tax raise involves other petroleum products including naphtha, lubricating oil and jet fuel, while small-displacement motorcycle, tire and ethyl alcohol were exempted from the tax to reduce burdens on the low and middle-income group.

China initiated fuel tax and pricing reforms five years ago, lifting consumption tax and launching a pricing system more closely linked with international market.

A consumption tax was firstly imposed in 1994 on consumer goods with a high energy cost and high pollution in order to guide production and consumption toward being environmentally-friendly and to promote a sustainable economic growth model.

Over ten countries including Russia, Australia, New Zealand and France have raised their oil product consumption tax since 2012 to ensure green development.

The increased income from the tax lift will be used in pollution control and the battle against climate change, as well as encouraging purchase of new energy vehicles to promote energy saving.

A research institute under Sinopec Group projected the increased income will be 40 billion yuan a year based on the data of 2013, when Chinese drivers consumed 94.19 million tons of gasoline and 170 million tons of diesel.

"Tax adjustment of petroleum products is a global trend and underlines the urgent need to promote the green economy worldwide," said Liu Shangxi, director of the Research Institute for Fiscal Science of the MOF.

Liu said the move will save oil resources and contribute to emission cuts. Auto exhausts are a major cause of air pollution.

Bai Chongen, vice president of Tsinghua University School of Economics and Management, said the adjustment will benefit the new energy sector and push a healthy and sustainable growth mode.