China plans drastic hike for gasoline taxes

From MarketWatch:

China plans next month to raise tax on regular gasoline by five fold and diesel fuel tax by eight fold, in a move to take advantage of falling crude prices and encourage energy conservation, state-run media reported Friday.

Under the proposed measures, gasoline tax will go from 0.2 yuan a liter (3 U.S. cents) currently to 1 yuan, and diesel tax will rise from 0.1 yuan per liter to 0.8 yuan, effective Jan. 1, Xinhua news agency reported, citing a government statement.

Mitigating the cost to motorists, the government would end some road tolls and waterway fees.

Revenues from the tax hikes will be used for infrastructure maintenance and management and to subsidize the losses of local governments from the abolition of road tolls, as well as to "support farmers and disadvantaged people affected by the reform," the report said....MORE

A related part of the Chinese fuel pricing strategy from Reuters via the Financial Times:

China overhauls subsidised fuel regime

China has unveiled a long-awaited overhaul of its subsidised domestic fuel price regime on Friday in a move that could make petrol cheaper in the short term but allow for more predictable profits at its state-owned refiners.

From January 1 Beijing will allow gasoline and diesel prices to move more regularly in line with the global market, ending years of infrequent, often unpredictable price setting by the central government that roiled share markets and oil prices.

Announcing details similar to what Reuters reported last week, Beijing will grant state-owned refiners Sinopec and PetroChina a guaranteed profit margin by pricing fuel at about four per cent above refinery-gate prices plus transportation.

It will also impose significantly higher taxes at the pump, although those increases are almost certain to be offset by an overall reduction in retail prices to match the over $100 or two-thirds fall in crude oil costs since early July. China raised fuel prices in late June but has not lowered them since.

Analysts said the reform was an easy one to make now, with cheaper fuel to help stimulate growth in an economy being hit hard by a global recession. China is also the world’s No. 2 oil consumer, but demand has slackened in recent months.

The real test will come if crude begins to rally again....MORE