SINGAPORE: China is set to begin 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, five trading and refinery executives told Reuters.
The world’s top crude oil importer has been clamping down on independent refiners since early last year, including probes into quota trading and fuel tax evasion, as Beijing seeks to curb excessive fuel processing and recoup state tax revenue losses.
With fuel demand already sluggish under Beijing’s zero-COVID policy, the probes hastened a rare annual decline in the nation’s crude oil imports and refinery production.
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Independent refiners, mostly located in eastern refining hub of Shandong, account for roughly a fifth of total Chinese crude oil imports.
The new inspections, due to start later this month, will be led by 15 state agencies including macro economic planner the National Development & Reform Commission (NDRC), the State Taxation Administration and the National Audit Office, the sources said.
“We were informed last week of the upcoming inspections and are getting ready for that,” said a trading executive with an independent refiner based in Shandong.
The inspectors are expected 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 due for each refinery and the crude oil import quota each plant is entitled to, the executive added.
Sources spoke on condition of anonymity due to the sensitivity of the matter. Neither the NDRC nor the national tax and audit authorities immediately responded to requests for comment.
The inspectors have booked more than 100 rooms for a month at Lanhai Yuhua Hotel in the Shandong city of Dongying, a member of the hotel’s staff told Reuters on Monday.
While it is too early to assess the longer-term impact of the inspections, the news will add to downward pressure on refinery operations. “For most of this year many plants operated in the red… and now we are going to experience another round of stringent inspections,” said a second Shandong-based refinery executive.
Independent refiners’ operation rates were last pegged at 68.15% of capacity during the July 28-Aug. 3 week, versus 69.5% the previous week, according to Chinese commodities consultancy JLC.
Plants ran at below 50% of capacity earlier in the year. Last year’s probes resulted in authorities netting several independent plants in northeast China’s Liaoning province for tax evasion and also a PetroChina unit for “irregular” reselling of crude oil to independent plants.