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China may raise threshold for windfall tax on oil gains

(Xinhua)
Updated: 2008-05-16 07:27

The Chinese government is considering raising the threshold of windfall tax levy on gains from crude oil, but the timing is not clear, Jiang Jiemin, president of PetroChina Company Ltd, said Thursday.

The tax threshold should have been raised when crude price surpassed US$80 per barrel, Jiang said, but he did not mention how much the threshold would be raised.

Raising threshold of windfall tax, or special oil gain levy, would be positive for the company's profitability, Jiang told Xinhua after the annual shareholders meeting of the company Thursday.

The current threshold for special oil gain levy is 40 U.S. dollars per barrel. When crude oil price surpassed 60 U.S. dollars per barrel, 40 percent gains will be levied. The price of crude oil has soared to over 120 U.S. dollars per barrel so far.

China began to levy windfall tax on crude oil from 2006 as a part of the move to reform the country's pricing mechanism of refined oil products which will connect domestic price more closely to the international market while giving subsidies to people fragile to high price of oil products.

However, soaring crude oil price and rising inflation risks slowed the government's move to raise domestic oil products price.

The government would not be likely to raise domestic oil prices in the short term as the consumer price index (CPI) was still steep, said Jiang.

China's CPI, the main gauge of inflation, rose 8.5 percent year-on-year in April and 8.2 percent for the first four months of this year.

The current crude price of 120 U.S. dollars per barrel is not good for long-term development of oil companies, Jiang said, adding that a price between 80 to 90 U.S. dollars per barrel is appropriate for both consumers and suppliers.

Reduced by below-cost fuel prices and windfall taxes, the oil giant's first-quarter net profit slumped 28.6 percent year-on-year.