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Fuel tax reform needs more transparency

By Ma Hongman (China Daily)
Updated: 2008-12-15 07:37

The 10-year overdue fuel taxation reform has finally come into public view.

According to the draft plan unveiled on Dec 5 by the National Development and Reform Commission (NDRC), the country's top economic planner, and three other government agencies on fuel taxes and the pricing of refined oil products, gasoline taxes will be raised to 1 yuan per liter from 0.2 yuan and diesel taxes to 0.8 yuan per liter from 0.1 yuan.

Taxes on other oil products will also be raised. The plan is due to be put into effect on January 1.

This is indeed a positive move. With the more workable taxation scheme in place, people's awareness of economical use of energy, and emission reduction, will be greatly enhanced.

The move will also help ease problems between the country's fast-growing economy and the wasting of resources.

At the same time, the reform will also help set up a resource pricing mechanism and make government revenues as well as their utilization more transparent.

The recent record low world oil prices, dipping to $40 a barrel, has offered a rare opportunity for China to push ahead with its fuel taxation reform.

The reform has set the tone for the country's refined oil market: Future adjustment of the market will be led by taxation levies instead of administrative will.

It will give the market a larger role in pushing for energy conservation and environmental protection.

After the adoption of the new oil pricing standard, the controversial issue of unrestrained road toll fees is expected to be resolved as well. According to the NDRC draft plan, fuel taxation will replace the long-standing road maintenance and management fees.

However, the regulation has also provoked heated arguments that it failed to make public how the fuel taxation levels were set. Such an elusive attitude by the authorities has turned out to be a source of widespread speculation.

Different countries have varying energy consumption and fuel taxation policies. In Europe and Asia, most nations have resorted to higher taxation to mitigate pressures on their oil insufficiency.

Germany for example, the largest European economy, has adopted a 260 percent tax on fuel consumption. Such a high taxation has contributed much to the development of energy-efficient technologies and the popularity of lower-emission vehicles.

However, the United States has a completely different policy. In the world's largest economy, fuel tax is only 30 percent. As a result, the ratio of the country's use of oil-consuming vehicles has long been higher than other countries.

A recent online survey of China's new fuel taxation showed more than 77 percent of those polled believed the 1-yuan-a-liter gasoline taxation was too high and unacceptable.

However, some domestic energy experts have claimed that the new taxation level would not play an important role in promoting energy conservation and emission reduction unless it was raised to 3 and 4 yuan per liter.

Conflicting views on the reform needs an official voice to clarify.

The reform is expected to produce substantive influences on different industries and sectors.

It will have an immediate impact on the transport sector. According to the regulation, road maintenance and management fees will be included in the unified fuel taxation. This will result in increased costs to those who consume a lot of fuel than in the past.

Farmers' production costs are expected to rise drastically too. About 80 percent of fuel consumption in the rural areas goes to farming, irrigation and power generation.

The added burden on farmers, who are already in a disadvantageous position, should receive the attention of responsible State organs.

Some supplementary measures have yet to be taken to ease farmers' burdens in order to avoid possible social dissatisfaction.

The authorities need to clarify how the taxes will be used and ensure that some of it will go toward subsidizing affected industries and enterprises.

We should not expect the authorities to work out a perfect fuel taxation and refined oil pricing system, it takes time to get it right.

But what the government should do first is to further increase transparency in its information publications. A good communication channel between the government and the people will dispel misgivings.

The author is an anchorman with China Business Network, a TV station based in Shanghai