China’s largest oil and gas producing region takes the lead in resource tax reform.
Jan 19,2019
[Shihua Cai Xun, May 24] The central government has decided to pilot a reform of resource taxes and fees in Xinjiang, switching the taxation of crude oil and natural gas resources from a volume-based system to a value-based system. According to a report by China Chemical Industry News on May 24, during the Xinjiang Work Symposium held in Beijing from May 17 to 19 by the CPC Central Committee and the State Council, the central government announced its decision to率先 implement a resource tax and fee reform in Xinjiang, shifting the taxation of crude oil and natural gas resources from a volume-based to a value-based system. Additionally, enterprises located in Xinjiang’s disadvantaged regions that meet the eligibility criteria will receive a corporate income tax preferential treatment of “two years of exemption followed by three years of 50% reduction.” Central government investment will continue to be tilted toward the Xinjiang Uygur Autonomous Region and the Production and Construction Corps, particularly during the 12th Five-Year Plan period.
[Shihua Cai Xun, May 24] The central government has decided to take the lead in implementing resource tax and fee reform in Xinjiang, shifting the resource tax on crude oil and natural gas from a quantity-based levy to a value-based levy.
According to a report by China Chemical Industry News on May 24, during the Xinjiang Work Symposium held in Beijing from May 17 to 19 by the CPC Central Committee and the State Council, the central government decided to take the lead in carrying out resource tax and fee reforms in Xinjiang. Specifically, the resource tax on crude oil and natural gas will be shifted from being levied based on quantity to being levied based on value. Enterprises operating in Xinjiang’s difficult regions that meet the relevant criteria will be eligible for a corporate income tax preferential treatment of “two years’ exemption and three years’ half reduction.” Meanwhile, central government investment will continue to be tilted toward the Xinjiang Uygur Autonomous Region and the Production and Construction Corps. During the 12th Five-Year Plan period, the scale of fixed-asset investment in Xinjiang is expected to double compared to the 11th Five-Year Plan period.
Xinjiang is an important petrochemical and energy production base in China, and currently the country’s largest oil- and gas-producing region, with abundant reserves of various resources. At the Central Xinjiang Work Symposium, Jiang Jiemin, General Manager and Party Secretary of the China National Petroleum Corporation (CNPC), stated that over the past 30 years, CNPC has cumulatively invested more than 300 billion yuan in Xinjiang, establishing a production capacity of 18 million tons per year of crude oil, 23 billion cubic meters per year of natural gas, 20 million tons per year of crude oil processing, and 1.2 million tons per year of ethylene. As of the end of 2009, proven geological reserves stood at 3 billion tons of oil and 1.3 trillion cubic meters of natural gas.
Since 2010, CNPC has formulated development and construction plans in accordance with a series of decisions and deployments made by the central authorities. The company has set a target to achieve an oil-and-gas equivalent output of 50 million tons by 2015 and exceed 60 million tons by 2020, while striving to maintain stable production for a sustained period of 20 years. Additionally, CNPC aims to increase its refining capacity to 26 million tons and 30 million tons respectively, and to improve its refined oil distribution network, thereby making every effort to ensure adequate market supply.
Jiang Jiemin stated that the Central Symposium on Xinjiang Work has further clarified the important strategic position of Xinjiang’s development within the overall cause of the Party and the country. PetroChina will fully leverage its role as a key central enterprise, accelerate the development of oil and gas resources in the Xinjiang region, and, over the next 10 years, through increased investment, transform Xinjiang into the nation’s largest base for oil and gas production, refining and petrochemicals, petroleum reserves, engineering and technical services support, and a strategic corridor for oil and gas in western China.
It is reported that China has long adopted a tax and fee collection system based on production volume for oil and gas resources. The petroleum tax rate has been gradually increased from 12 to 24 yuan per ton, far lagging behind the pace of rising international oil prices. As China’s refined oil pricing mechanism becomes increasingly aligned with international standards, this gap has become even more pronounced. Industry insiders generally believe that piloting resource tax and fee reforms first in Xinjiang—and establishing a tax compensation mechanism for oil and gas resources—will be conducive to the development of western China.
An Tifu, a professor at the School of Finance and Economics of Renmin University of China, believes that since the resource tax is a local tax, shifting to a value-based taxation system through resource tax reform can boost local fiscal revenues and support the development of public services. Moreover, given that resource consumption is concentrated primarily in the eastern coastal regions, piloting the resource tax first in Xinjiang will also help narrow the income gap between eastern and western regions.
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