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On March 21, the Ministry of Finance and the State Administration of Taxation jointly announced a major adjustment to China's consumption tax policy, which will take effect on April 1. This is the largest-scale revision of the consumption tax since the tax reform in 1994. The changes have drawn significant attention from various sectors, especially the petroleum and chemical industries, due to their impact on products such as automobile tires and refined oil.
The government's move aims to promote environmental protection and resource conservation. One key change involves the consumption tax on automobile tires. The tax rate for certain types of dumped tires has been reduced from 10% to 3%, while radial tires remain exempt from the tax. This exemption has been in place since 2001, as radial tires are considered advanced technology and are encouraged by the state. The continued tax exemption is seen as a positive step for the tire industry, offering more room for development.
Another major highlight of the reform is the introduction of new tax items for refined oil products. Previously, only gasoline and diesel were taxed under the consumption tax system. Now, five types of petroleum products—naphtha, solvent oil, lubricating oil, aviation kerosene, and fuel oil—are subject to taxation. The specific rates are set at 0.20 yuan per liter for naphtha, solvent oil, and lubricant oil, and 0.10 yuan per liter for aviation kerosene, fuel oil, and diesel.
Industry experts have expressed mixed reactions. Gu Hongzhen, president of the China Rubber Industry Association, welcomed the continued tax exemption for radial tires, calling it beneficial for the sector’s long-term growth. He pointed out that the previous 10% tax on some tires had caused severe financial strain on companies, leading to production cuts and technological stagnation. Lowering the tax rate is seen as timely and crucial for revitalizing the industry.
From the perspective of Sinopec and other petrochemical companies, the new taxes on industrial raw materials like naphtha and solvent oil could increase production costs, affecting downstream industries such as ethylene and chemicals. Analysts suggest that these changes may lead to higher operational expenses, particularly for listed petrochemical firms, potentially impacting their profitability.
Overall, this comprehensive tax adjustment reflects the government’s broader strategy to balance economic growth with environmental sustainability, while also addressing the needs of key industries.