China to start more tax inspections on independent refiners

China to start more tax inspections on independent refiners

Five trading and refinery executives told Reuters that China is about to start another round of tax inspections on independent refiners that will last months, adding to pressure on refinery operations which are already running well below capacity.

Since the beginning of last year, the world's top crude oil importer has been clamping down on independent refiners, including probes into fuel tax evasion and quota trading, as Beijing seeks to curb excessive fuel processing and recover state tax revenue losses.

With fuel demand sluggish under Beijing's zero-COVID policy, the probes have resulted in a rare annual decline in the nation's crude oil imports and refinery production.

About a fifth of total Chinese crude oil imports are made by independent refiners, mostly located in the eastern refining hub of Shandong.

The new inspections, due to start later this month, will be led by 15 state agencies including the National Development Reform Commission NDRC, the State Taxation Administration and the National Audit Office, according to the sources.

A trading executive with an independent refiner in Shandong told us last week of the upcoming inspections and are getting ready for that, he said.

The inspectors are going to look into factors such as crude throughput levels and output of main taxable products, such as diesel, gasoline and fuel oil, to gauge the amount of fuel tax for each refinery and crude oil import quota each plant is entitled to, the executive said.

Sources spoke on condition of anonymity due to the sensitivity of the matter.

Neither the NDRC nor the national tax and audit authorities responded immediately to requests for comment.

A member of the hotel's staff told Reuters on Monday that more than 100 rooms have been booked at the Lanhai Yuhua Hotel in the Shandong city of Dongying for a month.

The news will add to downward pressure on refinery operations, as it is too early to assess the long-term impact of the inspections.

Many plants operated in the red most of the year. A second Shandong-based refinery executive said we are going to have another round of stringent inspections.

The independent refiners' operation rates were last pegged at 68.15 per cent of capacity during the July 28 -- Aug. 3 week, compared to 69.5 per cent the previous week, according to Chinese commodities consultancy JLC. Plants ran at less than 50 per cent of capacity earlier in the year.

Last year's probe resulted in authorities netting several independent plants in northeastern China's Liaoning province for tax evasion and a PetroChina unit for illegal reselling crude oil to independent plants.