Fuel Tax Expected to Be Postponed

The continued collection of road maintenance fees suggests that the institution of China's long-expected new fuel tax will continue to be delayed.

Director Jin Renqing of the State Administration of Taxation said earlier this year that the country would institute the repeatedly delayed tax at an appropriate time this year.

But the announcement by the Ministry of Communications last week that motor vehicle owners must continue to pay the monthly road maintenance fees until the end of the year indicates that the new tax plan has been aborted once again.

The Chinese government has made the elimination of unscheduled levies and the transformation of necessary fees and charges into taxes as one of the priorities of its fiscal reforms.

The proliferation of such fees, which are usually managed as "off-budget" income, has sparked a vast number of complaints and complicated the fiscal operation of the state.

The Ministry of Finance has decided to choose the management of toll levies and other charges on vehicles as the area in which to make a breakthrough, because the problem of rampant levies is very serious in this area and the reform of this sector is regarded as being relatively easy.

In October, 1999, the Standing Committee of the National People's Congress passed amendments to the country's Highway Law, paving the way for the institution of the fuel tax.

"But the high oil prices since March 1999 have delayed the implementation of the new tax," said Zhang Peisen, a senior researcher with the Taxation Research Institute under the State Administration of Taxation.

International oil prices have risen from about US$10 per barrel in March 1999 to about US$28 per barrel at present, as a result of a reduction in oil supply.

The new tax cannot be implemented at this time, because the high oil prices and the relatively high tax rate would saddle users with an excessively heavy financial burden, Zhang said.

The fuel tax, combined with the value-added tax and the consumption tax, would account for more than 50 percent of fuel prices, insiders have said.

"This will increase the burden for those who frequently use vehicles including taxi drivers," Zhang said.

However, some other experts at the Development Research Center under the State Council said the high oil prices are just an excuse. "Oil prices will never drop to the March 1999 level again," said a research fellow identified as Chen.

Conflicting vested interests are the major reasons for the delay, he said.

(China Daily 06/06/2001)