The State Administration of Taxation released an announcement early this month regarding the levy of oil product consumption taxes, trying to further regulate the tax levy. The new regulation will take effect on March 1st, 2018.

    According to the announcement, invoices for gasoline, diesel, fuel oil, liquefied petroleum gas (LPG) and asphalt should contain these product names and read as “gasoline/diesel/fuel oil/LPG/asphalt invoices”. The invoices for chemicals such as aromatics, xylene, propylene and MTBE, should say “organic chemical feedstock or basic chemicals invoices”. This means invoice names and classification will be more specific.

    The announcement also states the procedures for taxpayers to get oil product invoices. They need to declare the product volumes for consumption taxes to the taxation administration in charge, and the administration will then issue invoices with an exclusive module designed to invoice oil products. This module is included in a new VAT invoice system.

    The new regulation may make it more difficult for refiners to evade taxes by means of selling a product under the name of another product, though it will not make much impact to refiners’ invoice issue, refiner sources said.

    The announcement will also make a significant impact on oil blending. When the invoices for aromatics, MTBE, LCO, alkylate gasoline etc. are presented as organic chemical feedstock or basic chemicals invoices, the application of these invoices will be further defined. In addition, most blending traders do not have production facilities and it will be more difficult for them to switch from chemicals invoices to refined oil invoices. It will also be harder for them to change product names in the invoice, given increasingly stern regulation over invoice issue for refined oil. This, combined with sharp rises in costs, will weaken the advantage for imported mixed aromatics, LCO and some other blendstocks and then probably dampen demand for imported blendstocks significantly.

    Some independent refiners also purchase blendstocks that come mostly with chemicals invoices. The new policy on the levy of consumption taxes is not expected to hit such demand in the near term. However, most refiners are planning to build reformers or are already equipped with such units and their blendstocks will be largely from their own production in the future, refiner sources said.

    The market is still waiting for the impact from the new regulation to reveal itself and JLC will follow up.