China Gas Prices Driven Up by High Taxes and Fees

A gas station belonging to the state-owned oil company, PetroChina, in Beijing, on March 21, 2016. Kim Kyung-Hoon/Reuters

News Analysis

China announced its fifth price adjustment this year for retail gas effective Monday. The increased retail price will lead to the average Chinese paying for gas as high as California’s most expensive gas price. A former Chinese utility company employee revealed that at least half of the gas price goes to taxes.

Yang Zonghua from Hangzhou, Zhejiang Province, who used to work as a meter reader and gas station manager at Sinopec and PetroChina, gave his insight into the high fuel prices in China.

Mr. Yang explained that, besides high taxes and fees, corruption and social security issues also contribute to the high gas and diesel prices.

High Taxes and Fees

Take Xuzhou, a city in the eastern coastal province of Jiangsu, as an example. The octane 92 petrol was 7.79 yuan per liter on March 1 and will be adjusted to 7.89 yuan on March 4, equivalent to approximately $4.20 per gal.

The Costco gas price in Los Angeles was $4.28 per gal for regular gas on March 1. Despite Costco offering slightly lower fuel prices compared to regular gas stations, the substantial income gap between the two countries means that Chinese residents evidently shoulder a much heavier burden of fuel costs than Americans in California.

He recalled that taxes and fees account for almost half the gas price. Currently, the breakdown of China’s gas price composition includes a 25 percent consumption tax, a 13 percent value-added tax, a 5 percent import oil tariff, a 2.66 percent urban maintenance and construction tax, a 1.75 percent corporate income tax, a 1.14 percent education surcharge, and a 0.26 percent local education surcharge, totaling approximately 48.81 percent of the fuel price.

Comparatively, Californians pay approximately $1.19 per gallon in gasoline taxes and fees, constituting about 27.8 percent of the fuel price.

The Chinese environmental and energy departments are also enthusiastic about upgrading oil products in the name of environmental protection. Ultimately, the costs incurred from these upgrades are passed down to consumers, according to Mr. Yang.

Corruption Factor

Mr. Yang indicated that PetroChina and Sinopec, as state-owned enterprises, engage in numerous infrastructure projects annually, including constructing new gas stations, acquiring privately owned gas stations, renovating oil tanks, and maintaining existing gas stations. He believed these renovation projects present opportunities for corruption among the involved personnel on each occasion.

He took the leasing or acquiring privately owned gas stations as an example. For a gas station valued at 5 million yuan (approximately $695,000), the acquiring team would demand a price of 15 million yuan ($2 million). The extra 10 million yuan ($1.3 million) is then privately distributed among relevant individuals.

The acquiring team would also advise the seller to inflate revenue through accounting methods, even if the target gas station is running at a loss, in order to present a profitable report. However, post-acquisition, the actual revenue rarely matches the reported level. Consequently, these losses must eventually be recovered from consumers.

He also mentioned a unique aspect of the state-owned enterprises (SOE).

Every year-end, these SOEs demand their affiliated gas stations to submit budgets for the upcoming year, outlining expenses such as office supplies, transportation, electricity, and business entertainment.

When the previous year’s budget wasn’t entirely spent, the allocation for the next year would only be reduced. Consequently, major SOEs such as PetroChina (China National Petroleum Corporation), Sinopec (China Petroleum & Chemical Corporation), and CNOOC (China National Offshore Oil Corporation) routinely witness a surge in entertainment expenses towards the year-end.

“It’s quite wasteful. The budget is not designed to meet the needs of a particular category; people will make every effort to spend the money that’s filed,” Mr. Yang remarked. “This is a rather typical aspect of state-owned enterprises.”

He elaborated that these SOEs monopolize the entire oil industry, covering refining, storage, transportation, and retail. However, there are many privately owned gas stations. In order to hinder these private enterprises from profiting, the SOEs strive to reserve most of the profit for upstream enterprises. Consequently, the profit margin is extremely limited at the gas station level.

Cost of Social Security

Through his experience in gas station operations, Mr. Yang believed that social conflicts in China have become increasingly pronounced in recent years.

Refueling has transitioned from self-service, to ID registration, and finally gas station personnel only.

He said it’s to prevent people from “weaponizing gasoline,” such as bringing a fuel container into a government building. He indicated that even purchasing kitchen knives would require real-name registration.

“The regime is worried that those with nothing to lose might resort to extreme actions amid the escalating tensions between the government and the populace,” said Mr. Yang.

In all, it adds up to the operational cost of gas stations. Mr. Yang indicated that the gas station he managed had to hire 13 staff members to work shifts. The cost also ends up in the gas price, he stated.

Shawn Ma contributed to this article.