The Chinese government has recently revised its consumption tax policy for several refined oil products, including naphtha, solvent oil, lubricant oil, and fuel oil. Under the new rules, these products are subject to a statutory consumption tax rate. Specifically, naphtha, solvent oil, and lubricants are taxed at 0.2 yuan per liter, while fuel oil is taxed at 0.1 yuan per liter. However, certain types of naphtha—such as imported naphtha, naphtha produced domestically for use as chemical raw materials (like ethylene and aromatics), and naphtha used in the production of petrochemicals—are exempt from the tax. This policy change took effect on January 1 this year and will remain in place until December 31, 2010. The Ministry of Finance and the State Administration of Taxation emphasized that naphtha sold directly by manufacturers will still be subject to excise duties, and specific guidelines for tax collection and exemptions will be issued separately. For consumer goods made from taxable naphtha, lubricating oil, or fuel oil that were recovered through outsourced or commissioned processing, the tax already included in the raw materials can be deducted from the final consumption tax liability. This helps avoid double taxation and ensures a fairer system. According to officials, the adjustment of the consumption tax policy was part of broader efforts to promote environmental protection, conserve resources, guide consumption, and indirectly adjust income distribution. Since April 1, 2006, China has gradually expanded its excise tax coverage to include various refined oil products, forming a comprehensive "finished oil" taxation framework. The tax rates vary depending on the product type, with leaded gasoline and unleaded gasoline taxed at 0.28 yuan and 0.2 yuan per liter, respectively. Before the latest adjustment, a temporary 30% tax rate was applied to newly taxed refined products to ease the impact on domestic refineries. After more than a year of implementation, the policy has been well-received, with steady growth in tax revenue and minimal disruption to the market. Ethylene and aromatic hydrocarbons are key raw materials in the petrochemical industry, used in the production of plastics, synthetic fibers, rubber, pharmaceuticals, and more. However, China's domestic production of ethylene remains insufficient, with about 55% of ethylene and downstream products, as well as 65% of chemical fiber raw materials, being imported. With low import tariffs and no quotas, foreign producers have a strong presence in the Chinese market. To maintain competitiveness, the government has temporarily exempted consumption tax on imported naphtha and domestically produced naphtha used for ethylene and aromatics production. However, naphtha sold directly by manufacturers to external buyers remains taxable to prevent tax evasion. Authorities stated that the tax adjustment will have a minimal impact on overall prices. Based on theoretical calculations, the increase in consumption tax per liter would be only a few cents, representing less than 1% of the ex-factory price. Therefore, if the tax policy on naphtha as a chemical raw material is restored to the statutory rate, the price impact will be negligible.

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