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China Cracks Down On Tax Loopholes In Blending Fuels Imports

Chinese authorities are looking to ease the domestic fuel glut and reducing pollution by heavily taxing as of June the imports of several kinds of blending fuels which are being used by refiners to produce lower-quality fuels.

As of June 12, China will impose a consumption tax on imported light cycle oil (LCO), mixed aromatics, and diluted bitumen, seeking to close a tax loophole that refiners have so far used to import cheap blending fuels for making gasoline and other fuels.  

“A small number of companies have imported record amounts of these fuels and processed them into sub-quality fuels which were then funnelled into illicit distribution channels, threatening fair market play and also causing pollution,” the Chinese Ministry of Finance said in a statement, as carried by Reuters.

Last month, China arrested several people in the southeastern province of Guangdong for an alleged illicit trade of LCO. China allows imports of light cycle oil for use as a blending component for diesel or a petrochemical feedstock. However, it is illegal to sell LCO as diesel without paying the so-called consumption tax.

The authorities have been long considering such a move to tax imports of blending fuels, but the consumption tax on imported diluted bitumen came as a surprise, analysts told Reuters.

According to consultancy Sublime China Information, the import taxes will benefit state-held refiners as they would raise the domestic gasoline and diesel prices.

The crackdown on LCO last month and the consumption tax on imports are expected to lead to significantly reduced demand for the fuel in coming months, analysts have told Reuters.

Refiners in South Korea, as well as international commodity and fuel traders, could see reduced demand from China because the new consumption tax on the imported blending fuels will raise the cost of buying those fuels. 

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By Tsvetana Paraskova for Oilprice.com

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