Officials of China's state-owned oil refineries said on Wednesday (July 2nd) that after the Chinese government substantially raised oil prices in June, it feared that it would quietly stop its import and export of crude oil VAT.
The time has entered the second day of the third quarter, but officials of refineries and enterprises still have not found the signal that the government should continue to implement some tax rebate policies. Since April of this year, the government has imposed a partial tax rebate on 17% of imported crude oil VAT paid by state-owned refining enterprises as part of a series of measures to offset losses in refineries and enterprises. These losses were caused by the inverted oil prices that forced the refinery companies to sell their oil at home prices below cost.
"Yes, we have heard that the government may cancel subsidies. It may start from July," said a crude oil trading manager of PetroChina. "For the government, continued subsidies are indeed a heavy burden."
On June 20, the Chinese government announced that domestic fuel oil prices have increased by 17-18%, but if the subsidies for refineries and enterprises are cancelled, Sinopec Corp. and China National Petroleum Corp. may continue to expand losses, leading to a shortage of domestic fuel oil supplies.
The tax rebate policy for import tax on refined oil products began in December last year. However, in July whether the government intends to continue to implement the tax rebate policy, it is still not known. A trader of PetroChina said on Monday that the company had suspended diesel imports in July for fear of the government canceling this policy.
**Subsidy or will be maintained, specific methods may change**
A senior personage of Sinopec told Reuters that part of the tax refund policy for imported crude oil was originally scheduled to be implemented only in the second quarter, but he added that the government should introduce other measures to reduce the losses of refinery enterprises.
"Even if this policy is abolished, we believe that the government will also use other methods to subsidize Sinopec," said the senior official.
Company sources told Reuters on Wednesday that the two state-owned companies have received subsidies for imported crude oil in May, but the subsidies for June have not yet been put in place.
Analysts estimated that if the equivalent of 14 US dollars per barrel of imported crude oil subsidies were canceled, China still needs to increase domestic oil prices by 20% before the domestic refining companies will not suffer losses. The Chinese government is unlikely to take this move in the near future.
Some of China’s oil prices remain the lowest in Asia. The Chinese government is not willing to overstate the price level quickly in pursuit of synchronizing with international oil prices, thereby accelerating inflation or causing social unrest. Therefore, it will be more ideal to adopt various subsidies and tax incentives.
Niu Li, economist of the Economic Forecasting Department of the National Information Center, said that if the import of crude oil subsidies were cancelled, the Chinese government could actually adopt a proposal to adjust the tax on crude oil production so that the lucrative profits from crude oil production can effectively offset the oil refining business’s Loss.
He also stated that China’s tax revenue in the first quarter increased by 34% year-on-year. Even if some of them were spent on post-disaster reconstruction of the Wenchuan earthquake, the Chinese government still has sufficient financial capacity to maintain the subsidy policy.
The time has entered the second day of the third quarter, but officials of refineries and enterprises still have not found the signal that the government should continue to implement some tax rebate policies. Since April of this year, the government has imposed a partial tax rebate on 17% of imported crude oil VAT paid by state-owned refining enterprises as part of a series of measures to offset losses in refineries and enterprises. These losses were caused by the inverted oil prices that forced the refinery companies to sell their oil at home prices below cost.
"Yes, we have heard that the government may cancel subsidies. It may start from July," said a crude oil trading manager of PetroChina. "For the government, continued subsidies are indeed a heavy burden."
On June 20, the Chinese government announced that domestic fuel oil prices have increased by 17-18%, but if the subsidies for refineries and enterprises are cancelled, Sinopec Corp. and China National Petroleum Corp. may continue to expand losses, leading to a shortage of domestic fuel oil supplies.
The tax rebate policy for import tax on refined oil products began in December last year. However, in July whether the government intends to continue to implement the tax rebate policy, it is still not known. A trader of PetroChina said on Monday that the company had suspended diesel imports in July for fear of the government canceling this policy.
**Subsidy or will be maintained, specific methods may change**
A senior personage of Sinopec told Reuters that part of the tax refund policy for imported crude oil was originally scheduled to be implemented only in the second quarter, but he added that the government should introduce other measures to reduce the losses of refinery enterprises.
"Even if this policy is abolished, we believe that the government will also use other methods to subsidize Sinopec," said the senior official.
Company sources told Reuters on Wednesday that the two state-owned companies have received subsidies for imported crude oil in May, but the subsidies for June have not yet been put in place.
Analysts estimated that if the equivalent of 14 US dollars per barrel of imported crude oil subsidies were canceled, China still needs to increase domestic oil prices by 20% before the domestic refining companies will not suffer losses. The Chinese government is unlikely to take this move in the near future.
Some of China’s oil prices remain the lowest in Asia. The Chinese government is not willing to overstate the price level quickly in pursuit of synchronizing with international oil prices, thereby accelerating inflation or causing social unrest. Therefore, it will be more ideal to adopt various subsidies and tax incentives.
Niu Li, economist of the Economic Forecasting Department of the National Information Center, said that if the import of crude oil subsidies were cancelled, the Chinese government could actually adopt a proposal to adjust the tax on crude oil production so that the lucrative profits from crude oil production can effectively offset the oil refining business’s Loss.
He also stated that China’s tax revenue in the first quarter increased by 34% year-on-year. Even if some of them were spent on post-disaster reconstruction of the Wenchuan earthquake, the Chinese government still has sufficient financial capacity to maintain the subsidy policy.
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