China Oil and Gas Tax May Put Up Great Wall to Success for Producers


China is planning on implementing a value-based tax on sales of natural gas and oil throughout the nation starting in November, according to a statement made by the Ministry of Finance on October 10.

The new oil and gas tax will be applicable to joint ventures as well as domestic producers and will levy a tax on sales between 5 and 10 percent, Bloomberg reports. A 5 percent resource tax was first utilized in 2010 in the Xinjiang Uighur Autonomous Region and was later affected 12 regions and provinces existing in the West, according to Dow Jones Newswires.

The "pilot version" of the policy was implemented in Xinjiang in June of last year, Bloomberg reports. While gaining acceptance of the original tax rate of 5 percent was not a challenge, the new rate of 5 to 10 percent could potentially reduce earnings of the larger Chinese oil companies, according to Dow Jones Newswires.

Moody's Investors Service has predicted that the nationwide adoption of the tax could cost the three major state-owned oil companies as much as CNY44 billion (US$6.87 billion) every year.