Asia/Pacific News
Chinese Tax Move to Cut Teapot Profits
A new Chinese tax policy will make it harder for domestic blenders and small "teapot" refiners to avoid a tax on their fuel oil purchases will raise the companies' costs and reduce margins, Platts reports.
The new rules aim to clamp down on companies that declare taxable oil products under other names to avoid a Yuan 812 per metric tonne (pmt) ($128.20 pmt) tax.
Starting January 1, 2013, producers must submit an inspection certificate to receive a consumption tax exemption, making it harder to declare fuel oil as another product, such as asphalt, that is exempt from the tax.
"When the new rules come into force, the cost of domestically blended 180 CST bunker will increase by Yuan 300-400/mt, and possibly dampen fuel oil demand," one trader said.
Platts reports that the shipping sector will probably absorb the higher costs because of the lack of alternatives, but more expensive domestically blended fuel could narrow the price gap with oil from Singapore, creating more import arbitrage opportunities.
China has called for the closure of its teapot refineries to reduce growth in the fuel market, but some observers have said the move may just push the refineries to expand enough to avoid the new rules.
