|
|
Windfall Gain Levy on Oil Exploitation Business in China
The Ministry of Finance ("MOF") issued the "Administration Measures on Collection of Windfall Gain Levy on Oil Exploitation Business" (the "Measures") on 25 March 2006. The Measures echoes the recent effort made by the State Development and Reform Commission on adjusting upward the prices of oil products in China and may be viewed as one of the steps in reforming the current oil market in China.
According to the Measures, effective 26 March 2006, enterprises exploiting and selling crude oil in China, including equity and contractual joint venture enterprises, are subject to the Windfall Gain Levy, if the monthly weighted average price of the crude oil is above US$40 per barrel. Such levy is imposed at the progressive rates from 20% to 40% on the portion of sales price exceeding US$40 per barrel. The calculation formula and the applicable rates are shown below for your easy reference:
Windfall Gain Levy (in RMB)
= [(selling price - US$40) x applicable rate - quick deduction] x number of barrels x exchange rate
Crude Oil Price
(US$/Barrel)
|
Rate
%
|
Quick Deduction
(US$/Barrel)
|
|
40 to 45 (inclusive) |
20 |
0.00 |
|
45 to 50 (inclusive) |
25 |
0.25 |
|
50 to 55 (inclusive) |
30 |
0.75 |
|
55 to 60 (inclusive) |
35 |
1.50 |
|
above 60 |
40 |
2.50 |
The Windfall Gain Levy is computed on a monthly basis and paid on a quarterly basis. The central and local state owned oil enterprises should report and pay taxes to the MOF and its local units respectively. The levy payable by the foreign joint venture oil enterprises should be withheld by their Chinese partners. Any late payment will be subject to a daily surcharge at 0.05%. The Measures has also clarified that the levy paid by the oil enterprises can be claimed as a deductible expense for corporate income tax purpose.
PwC Observation
Given the Measures states that the Windfall Gain Levy applies to enterprises exploiting and selling crude oil in China, there may be an uncertainty for enterprises not selling oil in China, for instance, foreign oil exploitation enterprises taking oil back to home countries as to whether the Windfall Gain Levy may apply. However, informal discussion with MOF indicates that all oil enterprises exploiting oil in China, including foreign oil enterprises will be asked to pay this Windfall Gain Levy. Meanwhile, other unclear areas such as whether the payment of the Windfall Gain Levy can be made in kind, how the price is determined in case of shipping oil back to home countries instead of selling them in China, etc are pending to be clarified. Hopefully, MOF may issue another circular to clarify the uncertainties. |
Get Your Copy Here
Download our China Tax/Business News Flash (April 2006, Issue 8) (pdf file, 151KB) for your reference.
Related Pages
An Update on Windfall Gain Levy on Oil Exploitation Business (Jun 2006)
Other Issues of China Tax/Business News Flash
Visit our Tax Library. |
 |
