China’s LNG industry to benefit from VAT reform

07 November 2012 10:02  [Source: ICIS news]

SINGAPORE (ICIS)--China’s liquefied natural gas (LNG) players are expected to benefit from the country’s tax reform that replaces turnover tax with value-added tax (VAT) for the transportation industry in selected regions, industry sources said on Wednesday.

The tax reform is part of the country’s program in stimulating consumption through tax reduction.

The country’s Guangdong and Fujian provinces have been implementing VAT in the transportation sector since 1 November, following Beijing, Shanghai, Jiangsu and Anhui.

Market players who need to pay for their LNG transportation services by trucks are expected to receive a larger proportion of tax credits, the sources said.

“We could receive just 7% tax credit of the invoice value which is issued by the logistic firm and is titled as turnover tax before the reform. Now we are able to obtain a full 11% tax credit of the invoice value which is titled as VAT,” a Guangdong-based gas company source said.

If the transportation cost is yuan (CNY) 30,000 ($4,800), for example, comprising CNY10,000 of toll fees and CNY20,000 of other costs which includes fuel and labour expenses, the latter CNY20,000 can be issued with a VAT invoice. This means that CNY2,200 can be deducted from its taxes, instead of just CNY2,100 before the reform, the source explained.

The larger tax credit can be granted to LNG producers, traders and downstream consumers without geographic restrictions, as long as the invoice they receive from logistics companies is titled as VAT, the source added.

The reform’s impacts on logistics companies are yet to know, the source said.

Meanwhile, the VAT reform is expected to better regulate the LNG transport industry in China, as self-employed taxpayers are not allowed to be granted a VAT invoice, a central China-based logistics company source said.

Therefore, non-company operations in the LNG transport sector will be restrained, thus helping the industry to scale up, the source added.

Turnover tax and VAT are two major tax categories in China. Turnover tax applies to a production process of a business with the tax rates varying from 2% to 6% in the transport sector in different regions, while VAT is levied on the difference between a commodity's price before taxes and its cost of production.

($1 = CNY6.25)

By: Jane Han

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