The government is ready to regulate tax collection in the retail market for fuel, which some have said will pave the way for the debut of the long-expected fuel tax. Others argue however that the fluctuation in the world oil price may delay the launch of the tax.

An official with PetroChina, the nation's second largest petrol provider, said the move will raise VAT on local petrol stations to the same level as the biggest two, Sinopec and PetroChina, in a bid to discipline the market.

Some local stations with annual revenue less than 1.8 million yuan (US$217,600) are only subject to a small fixed amount of VAT, or a 6 per cent tax rate, instead of the normal 17 per cent, according to the official.

He said the move also aims to prevent tax evasion by local stations, in preparation for the fuel tax.

Aiming to replace road maintenance fees, the proposed fuel tax is a major reform of the national fiscal system.

Experts have said the repeated delay of the launch of the fuel tax since late 2000 is partly because the government has yet to complete a control system over the collection of tax from local petrol stations.

But others argue that the recent fluctuation of the world oil price is not in favour of the tax.

"It (the price fluctuation) is a blow to the kick-start of the fuel tax," said a senior expert with the State Information Centre.

"The government hoped to see a stable and low oil price to cushion the impact of the fuel price rise once the tax is levied," the researcher said. "But under the current situation, it may become difficult to push it through."

Since the beginning of March, the world oil price has risen by a fifth due to a tight oil supply resulting from violence in the Middle East and from Iraq suspending oil exports.

Having hit a six month high at the beginning of April, the price subsided in the first week of April, but turned around again in recent times.

According to current design for the proposed VAT on fuel, the fuel price will double from the present level after the tax is levied. The government is worried that a high oil price, plus fuel tax, would saddle consumers with heavy financial burdens.

China Business, a Beijing-based business newspaper, said the time to debut tax during an uncertain trend of oil price is inappropriate, citing an unnamed official from the State Administration of Taxation.

"The oil price is relatively high. If the tax is levied, we are afraid it would disrupt normal fuel consumption and undermine industries like agriculture and transportation," the official was quoted as saying.

There is speculation that the government was mulling over launching the tax by June or July, according to an analyst from the China National Petroleum Corp, parent of PetroChina.

"But now they may reconsider the schedule, or at least hold off for a period," he said.

But Ni Hongri, a senior researcher with the Development Research Centre under the State Council, urged the government to launch the tax as soon as possible, to encourage consumers to save oil.

"It is impossible to wait for the best time as the price is always changing," said Ni.

"In consideration of the high costs and risks, the Government should lower the tax rate first and raise it when the oil price drops," Ni added.

The State Information Centre analyst said the fuel tax is not likely to be levied this year because the government is very cautious to maintain the political and economic stability before the government leadership changes this autumn.

(China Daily April 29, 2002)