By Shi Weiting, Sinopec Refining and Sales Company
In May 2023, the State Taxation Administration issued the Notice on Supervising the Truthful Declaration of Consumption Tax on White Oil and Iso-Octane Products of Refined Oil Production Enterprises (hereinafter referred to as the Notice). The Notice stated that iso-octane as an ideal component for blending gasoline, belongs to non-standard gasoline, and falls within the scope note of naphtha taxation. Therefore, starting from the May tax declaration period, it is required that the local goods and labor departments should urge all competent tax authorities to truthfully declare and pay consumption tax on No. 5 and No. 7 industrial white oil and iso-octane sold by refined oil production enterprises. On June 30, 2023, the Ministry of Finance issued the Announcement on the Implementation Standards of Certain Refined Oil Consumption Tax Policies. This announcement officially included 17 types of petrochemical products such as alkylate (iso-octane) into the scope of refined oil consumption tax, and the tax would be levied at the same rate as gasoline. Based on the current consumption tax on naphtha of RMB1.52 per liter, the consumption tax on iso-octane is approximately RMB2 105 per ton (approximately RMB2 380 per ton including 13% VAT). The following briefly describes the impact of consumption tax on alkylate oil (iso-octane) market.
Impact of consumption tax on alkylate oil market
1. Reduce low-priced oil products
The implementation of the consumption tax policy has led to decreased profits for social oil blenders. Consequently, the supply of low-priced oil products will decrease accordingly. However, the main suppliers such as refineries will be less affected because the consumption tax is levied during the production and import processes. According to the current policy, suppliers that recover gasoline, diesel, naphtha, fuel oil or lubricating oil by means of purchase, import or consigned processing for their continuous production of taxable refined oil are allowed to deduct the consumption taxes that have been paid for the taxable oil from the amount of the consumption tax payable on refined oil.
Therefore, the cost of the alkylated oil that flows into the refinery can be passed through consumption tax deduction and the market share of refined oil products produced by refineries further will increase.
The implementation of the consumption tax will lead to increased costs for oil blending manufacturers and significantly squeeze the profit margins of local refiners and middlemen involved in alkylate oil blending and refined oil. These costs will ultimately be reflected in the sales price of the products and borne by consumers.
2. Regulate the domestic oil market
With the release of the Announcement on the Implementation Standards of Certain Refined Oil Consumption Tax Policies, as well as the introduction of a series of national policies and the strengthened industry supervision in recent years, the consumption tax policy on refined oil has been continuously improved. These improvements have effectively closed the loopholes in the collection of consumption tax in the oil process, narrowed the space for tax avoidance by social oil blenders, and standardized the chaos in the refined oil market, which will effectively enhance the standardization and centralization of the domestic oil market in the future, further maintain the legal and compliant industry order, ensure national tax revenue, and create a just and fair market environment for refined oil products.
Follow-up business suggestions
1. Pay attention to the substitutability of alkylate oil
In the blending pool of refinery plant, there is fierce competition among the substitutes for alkylate, mainly including catalytic gasoline and MTBE. Catalytic gasoline is the main gasoline component produced by refineries and has certain advantages in price. MTBE has a higher octane number and has more advantages than alkylate as a gasoline component. Despite this, alkylate oil, with high octane number, low sulfur content, high combustion calorific value, and good compatibility with gasoline, and as a high-quality clean gasoline component, still has the potential for widespread use.
2. Pay attention to the risk of gasoline surplus
At present, there is a relatively large supply and demand contradiction in the refined oil market. Under this situation, refineries, through transformation and upgrading, can adjust their product structure, reduce gasoline production, and increase the production of petrochemical raw materials and other high value-added products to improve overall economic benefits. In addition, efforts can be also paid to explore international markets, strengthen export promotion and cooperation, and alleviate some of the pressure on the domestic market.
3. Pay attention to the product name of the upstream invoice
The State Taxation Administration released the Announcement on Issues Concerning the Collection and Management of Refined Oil Consumption Tax that stipulates 17 categories of chemical products that belong to refined oil, and the invoices for these products can only be issued in the refined oil invoice module. To avoid risks, it is necessary to ensure that the cooperation with upstream suppliers complies with relevant tax regulations during the procurement process and strictly abide by the issuance requirements for refined oil invoices. At the same time, it is also crucial to strengthen the review and management of the upstream supply chain to ensure that all purchased chemical products comply with laws and regulations.
4. Pay attention to national legislation news
The Consumption Tax Law (Draft for Comments) was announced in December 2019, and a draft had been prepared for review in 2021. According to the 2023 legislative plan, the Consumption Tax Law (Draft) is expected to be submitted to the Standing Committee of the National People's Congress for review this year and introduced within the next two years. Once the Consumption Tax Law is introduced, all previous documents and announcements will become invalid, including the Announcement on the Implementation Standards of Consumption Tax Policies for Certain Refined Oil Products. Therefore, trading companies that purchase and sell alkylate oil must pay close attention to the updates of consumption tax legislation, accurately grasp changes and adjustments in consumption tax policies, and keep abreast of its relevant details and regulations to ensure legal compliance in the process of purchasing and selling alkylate oil and comprehensively implement the principle of legal taxation.
