China will extend a value-based tax on sales of oil and natural gas nationwide starting next month to help save energy in the world’s fastest-growing major economy and boost local government revenues to develop inland provinces.
The oil and gas tax, ranging from 5 to 10 percent of sales, will be levied on both domestic producers and joint ventures with overseas companies, the Ministry of Finance said in a statement today. China will impose a value-based tax on other commodities when the time is right, it said.
China, which currently levies the tax based on volume, rolled out a 5 percent tax on oil and gas sales in Xinjiang on a trial basis in June last year to help fund development of the western province. The new regulation may crimp the earnings of companies including PetroChina Co. and China Petroleum & Chemical Corp. (600028), known as Sinopec.
“The tax change will slash our earnings forecast for PetroChina and Sinopec by 2 percent in 2011 and 11 percent in 2012,” Anna Yu, a Hong Kong-based energy analyst with ICBC International Research Ltd., said by telephone.
PetroChina fell 1.7 percent to close at HK$9.02 in Hong Kong trading, while Sinopec declined 1 percent to HK$7.09. The benchmark Hang Seng Index gained 2.4 percent.
Cnooc Ltd. (883), China’s biggest offshore energy explorer, advanced 3.9 percent to HK$13.72, the highest since Sept. 16. Ventures with overseas partners account for 31 percent of the company’s projects, according to ICBC’s Yu.
“The impact on Cnooc should be non-material given the tax is replacing royalties that offshore explorers currently pay,” she said.
Funds for Development
The government is planning 23 projects in West China at a cost of 682.2 billion yuan ($107 billion), the National Development and Reform Commission, the country’s top economic planner, said last year. The projects include the construction of roads and railways, wind farms and a nuclear power plant.
“China will likely apply a 5 percent tax rate nationwide in the short term as they did in the western regions,” said Qiu Xiaofeng, an analyst at Beijing-based Galaxy Securities Co. “A 10 percent rate would be too heavy for oil and gas producers.”
China Shenhua Energy Co., the country’s biggest coal producer, was unchanged at HK$31, while China Coal Energy Co. surged 6.9 percent to HK$8.17.
“Tax levies on coal mining are still volume-based and Chinese listed coal miners currently pay taxes within today’s range,” Helen Lau, a Hong Kong-based analyst at UOB Kay Hian Ltd., said by telephone. “We don’t expect the government to change the tax to a value-based one in the short term as they did to oil and gas.”
On a volume basis, China will levy a tax of 8 to 20 yuan on every metric ton of coking coal sold and 0.3 to 5 yuan a ton for other coal grades starting next month, the government said yesterday, without stating current tax rates.
The tax on coking coal is 8 yuan a ton at present and 0.3 to 5 yuan a ton for other coal grades, according to ICBC’s Yu.
Starting in November, the levy on iron ore sales will be 2 to 30 yuan a ton, the tax on rare-earth minerals 0.4 to 60 yuan a ton, and the rate on nonferrous metal ore 0.4 to 30 yuan a ton, according to the government.