China has implemented a revised consumption tax policy for certain refined oil products, including naphtha, solvent oil, lubricant oil, and fuel oil. Starting from January 1 this year, these products are subject to a statutory consumption tax rate of 0.2 yuan per liter for naphtha, solvent oil, and lubricants, while fuel oil is taxed at 0.1 yuan per liter. However, certain exemptions have been introduced to support domestic chemical industries. Imported naphtha and domestically produced naphtha used as raw materials for ethylene and aromatic hydrocarbon production are temporarily exempt from the consumption tax from January 1, 2010, to December 31, 2010. This exemption aims to reduce the tax burden on key chemical feedstocks and enhance the competitiveness of China’s petrochemical industry. On the other hand, naphtha sold directly by manufacturers to external parties remains taxable, to prevent tax evasion through improper sales channels. The adjustment aligns with broader policy goals of promoting environmental protection, resource conservation, and guiding consumption patterns. By including naphtha, solvent oil, lubricant oil, and fuel oil in the excise tax system, China has created a more comprehensive taxation framework for finished petroleum products. Previously, a temporary 30% tax was applied to newly taxed refined products to ease the transition for refineries. Over the past year, the policy has been well-received, with stable tax revenue growth and minimal disruption to the market. Ethylene and aromatic hydrocarbons play a crucial role in the chemical industry, serving as essential building blocks for plastics, synthetic fibers, rubber, pharmaceuticals, and more. However, China's domestic production of ethylene is still insufficient, with about 55% of ethylene and its downstream products imported. Given the low import tariffs (currently 0%) and the lack of quota controls, foreign producers have a significant advantage in the Chinese market. Many international companies are expanding their presence in China due to their scale, technology, and resource advantages. To address this imbalance, the government has adjusted the tax policy to provide temporary relief to naphtha used in ethylene and aromatics production. This move is intended to level the playing field and support domestic manufacturers. At the same time, strict measures are in place to ensure that naphtha sold directly by producers is not exploited for tax avoidance. According to officials, the impact of the tax adjustments on consumer prices will be minimal. Based on calculations, the additional tax burden per liter would be less than 1% of the ex-factory price. Therefore, the policy change is expected to have a limited effect on overall market prices, while supporting the long-term development of China’s domestic petrochemical sector.

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