China Releases Plans For Fuel Tax Increases

China releases plans to raise fuel tax rates in exchange for eliminating fees

China's Cabinet on Friday released details of a fuel tax reform that would raise taxes for gasoline and diesel while eliminating other fees for drivers.

The plan, scheduled to take effect Jan. 1, would raise the tax on gasoline to 1 yuan (14 cents) per liter (0.26 gallon) from the current 0.2 yuan (3 cents). The tax on diesel would rise from 0.1 yuan (2 cents) per liter to 0.8 yuan (11 cents).


Despite the increase, existing fuel prices would not rise, the State Council, China's Cabinet, said in a notice, presumably because any increase would be absorbed by falling costs resulting from the plunging price of crude oil.

Under the plan, six categories of fees levied on drivers would be eliminated, including an annual road tax computed by the number of seats per car and a surcharge on passengers and freight carried by boats.

The announcement said the plan could come under further review depending on the response from the public.

China's government dictates the cost of gasoline, and pump prices have not fallen in recent weeks despite the global price of crude tumbling 70 percent since July to a near four-year low.

China has long sought to reform the price structure for energy resources such as gasoline to more clearly reflect supply and demand. The tax increases could therefore herald a loosening of government price controls instituted originally to keep fuel affordable for farmers and low-income citizens.

The tax increases also mark an attempt to promote energy saving and reduce emissions, part of an overall attempt to boost efficiency in the economy.

With oil prices declining, the present time provides an opportunity to raise taxes without prompting major complaints.

The announcement said the higher tax revenues would be used in part to maintain and manage roads and waterways and to help compensate local governments for lost income from eliminated tolls and fees.

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