Beijing applies brakes to fuel tax
Policy fine-tuning delays implementation until oil prices stabilise from record highs
The mainland will delay the introduction of a tax on fuel until oil prices retreat from their current record levels, delegates to a conference on the mainland's car industry were told at the weekend.
'Now is not an appropriate time to carry out the [tax] policy, as the government plans to launch it only when international oil prices [are low],' said Chen Qingtai, research fellow at the State Council's Development Research Centre. He was speaking at the 6th Car Forum, a two-day conference held in Beijing, which focused on the mainland car industry and its prospects for next year.
This is the first time a government representative has indicated a delay because of high oil prices since mainland media reported that the tax would be imposed in March next year. The delay will postpone the implementation of a fuel tax, a move that will be greeted with relief by the industry.
The government was concerned about soaring fuel consumption and worsening air pollution in already smoggy cities with an increasing number of vehicles on the road, Shi Yaobin, director of the Ministry of Finance's tax policy department, had said. He added that the ministry was considering rolling out a series of tax policies encouraging manufacturers to produce more fuel-efficient and environment-friendly cars.
Mr Chen's comments echoed those by former premier Zhu Rongji when high oil prices put a fuel tax on hold in 2001. Mr Chen, who is a member of the Standing Committee of the Chinese People's Political Consultative Conference, said that it would be necessary to alter the present pricing mechanism of oil - with the price being determined by the central government - before introducing a fuel tax.
Industry players said they did not believe that the high oil price was the real reason for delaying a fuel tax.
They said the issue had become tangled in a conflict of interest over fears that Beijing might cancel the collection of toll-road fees or yearly road maintenance fees as a way of offsetting some of the added burden of a new fuel tax.
'For instance, the revenue generated from toll roads at present goes to the toll operators and the Ministry of Communications. If the tolls were reduced or scrapped due to the implementation of the fuel tax, it is obvious that the Ministry of Communications will lose an important revenue source,' said an industry player.
The price of oil rose to record highs above US$95 per barrel last week.
The debate on the implementation of the fuel tax in the country dates back to 1994. At the time, the central government had hoped to begin collecting the tax in 1998 but it re-opened the proposal in 2001, 2002, 2004, 2005, last year and again this year.
Some industry players who pushed for the fuel levy said that it could be a tariff policy to force drivers to use smaller cars that consume less oil.
The central government adopted a tax on the sale of cars in April last year, tiered at a low tax rate of 3 per cent for cars with engines sized one-litre or less while the tax on big three-litre engine cars is 9 per cent.
However, small cars are not welcomed by mainland drivers. A recent Xinhua research report showed that consumers are reluctant to buy small-engine cars because they feel the performance is not as good as that of larger cars, while figures from the China Association of Automobile Manufacturers showed that only 134,300 small-engine cars were sold in the first half, a year-on-year decrease of 28.9 per cent.
The country is eager to clean up its air by reducing emissions by next year when it hosts the Olympic Games.
National Development and Reform Commission vice-chairman Zhang Guobao earlier said the government hoped to meet the Euro IV emission standard, ideally, by early next year.
A fuel tax, also known as a petrol tax, is a sales tax imposed according to the sale of fuel. There are more than 130 places in the world collecting fuel tax, including Hong Kong and the United States. The levied tax is usually distributed among the central and local governments.