BEIJING: China has restored its value-added tax (VAT) rebate policy after an 11-year suspension, to boost exports of refined oil products amid a domestic supply glut, industry sources said. The VAT rebate was set at 17% for gasoline, gasoil and jet fuel exports, effective 1 November 2016, according to the country’s Ministry of Finance. The rebate applies to exports of refined oil under China’s imported materials processing trade and general trade, but the shipments remained subject to consumption tax.
The market impact of the policy is expected to be minimal since 90% of China’s refined oil exports fall under supplied materials processing trade, which is exempted from both VAT and consumption tax, industry sources said. For naphtha and fuel oil, no tax policy was released. The new policy is a welcome development as it basically reduces the refiner’s tax burden, but the overall impact on the export market will be negligible, said a source at Dalian West Pacific Petrochemical Co (WEPEC). WEPEC is the only domestic refiner that exports refined oil under imported materials processing trade, while other Chinese refiners ship out products under supplied materials processing trade.
The company exports a small volume of gasoline and jet fuel under imported materials processing trade, while its jet fuel and gasoline exports are not being subject to consumption tax, the source said. In the first nine months of 2016, China exported about 540,000 tonnes of gasoline and 50,000 tonnes of jet fuel under imported materials processing trade. All gasoline and jet fuel volumes came from WEPEC, according to customs data. Nonetheless, the VAT rebate policy indicates an inclination by the government to further open up the market and promote exports amid a saturated domestic market, industry sources said.
Industry sources are hoping that the Chinese government will consider a rebate on the consumption tax, which has been eating into refiners’ profit, to further encourage exports of refined oil products. A more simplified way of exporting the products will also help boost the shipments, to promptly address the domestic supply glut, they said. But China is expected maintain an export quota on refined oil products to ensure energy security, industry sources said. In 2005, China had set strict tax policies to curb exports of refined oil products amid a domestic supply crunch. But conditions have since changed, and the market has been oversupplied in recent years, necessitating bigger exports. As of last year, the country’s apparent consumption of refined oils totalled 316m tonnes versus its total output of 337m tonnes, official statistics showed.
The Chinese government began encouraging overseas shipments of refined oil this year by raising the export quota by more than half from 2015. Consequently, the country’s gasoline exports saw a 72% year-on-year surge in its gasoline exports in the first nine months of 2016, while gasoil shipments more than doubled in the same period to 10.8m tonnes. Exports will remain key to alleviating the supply glut in the domestic market, which continues to see strong capacity growth, industry sources said.
China is in the process of opening up its refined oil market, recently making its independent oil refiners eligible to export products. In the first 10 months of 2016, the government has granted four batches of refined oil export quotas totalling 46.05m tonnes, representing a 54% increase from the full year of 2015. The country has also been adjusting domestic fuel prices more frequently, to attune them to developments in the international markets, industry sources said. China is the world’s second-biggest economy and a major energy consumer, but its pace of expansion has steadily weakened over the past years. In 2016, the economy is projected to post a 6.5-7.0% growth.
