The mainland announced significantly higher consumption taxes on a range of fuel products after it implemented a cut in fuel prices yesterday. The price cuts and consumption tax increases are the two key elements of the long-awaited reform aimed at matching regulated domestic prices with free-market prices and encouraging consumers to drive less and use more fuel-efficient vehicles. From January 1, the consumption tax on petrol, naphtha, solvents and lubricants will rise fivefold to one yuan (HK$1.13) a litre from 0.2 yuan, with diesel tax going up eightfold to 0.8 yuan a litre from 0.1 yuan, the State Council said in a statement released yesterday. The tax on jet kerosene will eventually go up from 0.1 yuan to 0.8 yuan, but the increase will be temporarily postponed. The taxes, which are paid by sellers and levied according to the amount of consumption, will be offset by the cancellation of six types of road and waterway maintenance fees levied by local governments. 'We will enhance the consumption tax system and change the fuel tax to be paid by consumers at an appropriate time,' the statement said. Domestic fuel prices will continue to be indirectly linked to those on international markets and international prices for crude oil. The production cost of oil firms and domestic supply and demand will also be considered when pricing refined oil products. 'When changes in international oil prices exceed a certain level for a certain period of time, domestic prices for refined oil products will be correspondingly adjusted,' the statement said, without elaborating. Beijing raised fuel prices in late June but had not lowered them until yesterday, when it reduced the refinery sales price of petrol 900 yuan a tonne, cut diesel 1,100 yuan a tonne and the refinery selling price of jet fuel 32.2 per cent to 5,050 yuan a tonne. 'The reform will keep the two dominant oil refiners' margin at a thin level, but we expect the government to adjust the domestic refined oil prices again when international oil prices go up above US$80,' said Pang An securities analyst Zhang Guojun. The price of New York crude oil sank yesterday to US$35.62 a barrel, the lowest in 41/2 years. Another analyst said the reform was well designed to make consumers feel good, since the consumption tax was paid by sellers. 'Consumers are happy because they don't need to pay road fees nor the tax, which helped the reform to be smoothly implemented,' said the analyst, 'but compared with the international oil price now, the prices of domestic oil products prices could be cut further.' Beijing has tried to introduce a fuel tax for more than 10 years, but wrangling between central and local governments over the distribution of tax receipts prevented earlier efforts from succeeding.