Experts urge government to levy fuel tax
By Xu Dashan (China Daily)
Updated: 2004-08-23 08:08

China should start levying taxes on fuel oil as soon as possible to prevent a possible energy crisis in the future, experts said.

Jin Bosheng, a senior researcher with the Chinese Academy of International Trade and International Co-operation, said China's energy demand had grown too fast during the past few years.

"This bears a close relation to the rapid development of the country's auto industry," he said.

Oil consumption in China's car industry was much higher than in foreign countries, Jin said.

China's auto industry consumed 65.6 million tons of oil in 2000, accounting for one third of the country's total oil demand, according to figures from the State Council Development Research Centre.

Economists at the centre predicted the auto industry was expected to consume 138 million tons of oil a year by 2010 and 256 million tons a year by 2020, accounting for 43 per cent and 57 per cent of the country's total oil demand.

"Because the auto industry will continue to grow at a high rate in the coming years, the country has to increase oil imports to fuel it," Jin said.

China's crude oil imports rose a year-on-year 40.7 per cent to 9.6 million tons in July, according to figures from the General Administration of Customs.

Crude oil imports hit 70.6 million tons in the first seven months, up 39.5 per cent from a year ago.

China plans to import 120 million tons of oil in 2004.

"Surging oil demand by the auto industry and other industries would push international oil prices higher," he said.

The government should be alerted to a possible oil crisis, he said. It should adjust its energy consumption policy to encourage energy conservation.

"Implementation of a fuel oil tax should be an effective way," Jin said, adding that the development of China's auto industry should be based on energy conservation.

"If consumers are aware of the rising costs of driving cars, they will be more prudent buying these vehicles," he said.

Jin said the new tax would not have a negative impact on the development of the car industry.

On the contrary, it would force auto manufacturers to produce quality products for consumers, he said.

Ni Hongri, a senior researcher with the State Council Development Research Centre, said that from the long-term point of view, the government should increase taxes for oil consumers to promote energy saving.

"But levying a fuel oil tax should not be the only way," she said.

The government could also raise the consumption tax rate.

The idea of levying a tax on fuel oil to replace the existing road maintenance fees was proposed a long time ago.

The new tax was included in the government's "tax-for-fees" reform plan.

The government wants to eliminate unscheduled levies and transform necessary fees and charges into taxes as one of the priorities of its fiscal reforms.

The proliferation of such fees, which are usually managed as "off-budget" income, has sparked a vast number of complaints and complicated the fiscal operation of the State.

The Ministry of Finance has decided to choose the management of charges on vehicles as the area in which to make a breakthrough, because the problem of rampant levies is very serious in this area and the reform of this sector is regarded as being relatively easy.

In October 1999, the Standing Committee of the National People's Congress passed amendments to the country's Highway Law, paving the way for the institution of the fuel tax.

But the government has repeatedly delayed implementation.

Liu Huan, professor of the Central University of Finance and Economics, said the repeated delay (in levying the tax) was partly due to conflicting interests among different departments.

Communication departments would no longer be able to hold road maintenance fees as they do now after the implementation of the new tax.

Officials and economists also have different ideas on how to collect the tax, Liu said.

Some said it should be levied on oil producers, while others said it should be levied on retailers.

The high oil price on the international market was another major reason for the delay of the new tax debate, Liu said.

The oil price rose to as high as US$49 per barrel last week, from about US$30 per barrel at the beginning of this year.

Experts said the high oil prices and the relatively high tax rate would saddle users with an excessively heavy financial burden.

The fuel tax, combined with VAT and consumption tax, would account for more than 50 per cent of fuel prices, one expert familiar with the new tax said.

This would increase the burden on those who frequently use vehicles including taxi drivers, the expert said.

But for private car owners who do not frequently use their motors, the new tax was good because they could save a considerable amount of money.

Director Xie Xuren of the State Administration of Taxation (SAT) said earlier this year that the government did not have a timetable for levying the tax.

The Ministry of Finance, the SAT and other relative government departments have done a lot of preparation work investigating, studying and testing the new tax, he said.

The government would put the new tax into practice when the time is ripe, he said.

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