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Chinese Refiner Reportedly Dodged $2 Billion In Fuel Taxes

An independent Chinese refiner may have avoided paying some $2 billion in taxes by falsifying the kind of fuels it sells, Bloomberg has reported, citing a report in a Chinese outlet owned by state news agency the People’s Daily.

The company, Hengli Petrochemical Co., according to the report, sold gasoline and diesel under false names, as fuels that carry a lower tax burden, which resulted in it saving some 13 billion yuan, or about $2 billion.

If the report proves accurate, this could prompt a further government clampdown on independent refiners after taking action to curb their fuel production. The move was prompted by production, especially at independent refineries, rising faster than demand for fuels, creating a fuel glut and undermining refiners’ margins.

In order to reduce the glut, Beijing ordered state-owned refiners to stop trading their crude oil import quotas with independents and also reduced independents’ import quotas for the second half of the year, to 35.24 million tons, down 35 percent.

Independent Chinese refiners have been a major driver behind the country’s surging oil imports in the past couple of years, enjoying a relatively loose regulatory environment. This, however, seems to be changing, with teapots recently becoming the target of tax-evasion allegations and claims of environmental law violations.

Independent refiners account for a quarter of China’s refining capacity, which last month hit a new high in run rates, at 14.8 million bpd. This, however, was lower than the average daily run rates for the first half of the year, which stood at 15.13 million bpd, according to the latest data from the Chinese customs authority.

These rates will likely fall in the second half, as could imports, because of the government clampdown on teapots, which has combined with higher oil prices to depress demand, Reuters reported earlier this month.

By Irina Slav for Oilprice.com

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