China plans to impose a resource tax of up to 10 percent on crude oil production "soon" and introduce a long-debated fuel tax at an "appropriate time," says the Ministry of Finance.

The tax on oil production will start at five percent and be doubled later. The rate will be based on oil prices and replace an existing levy based on volume, Vice Finance Minister Zhu Zhigang said on the ministry's website.

Zhu didn't specify a timetable to impose the resource tax, which will also cover geothermal heat and mineral water production.

The tax will be distributed to local governments to compensate for the extraction of oil, benefiting resource-rich provinces and the environment, Zhu said.

The levy is set to significantly reduce revenues of oil firms like PetroChina Co and Sinopec Corp, but their share prices could be little affected as higher resources taxes are widely expected and have already been factored into valuations of the stocks, said Gordon Kwan, head of China energy research at CLSA.

"The government may increase subsidies to the nation's ailing refining sector and speed up reform in the refined oil-pricing system after collecting the tax," said China Merchants Securities analyst Qiu Xiaofeng. "So the tax may not necessarily be negative to oil firms in the long term."

"Higher taxes will be passed on to consumer goods, putting upward pressure on inflation," warned an analyst at TX Investment Consulting.

China's oil firms are subject to a special upstream tax levy, which is assessed at between 20 and 40 percent of the portion of the price over US$40 a barrel. Today, crude trades above US$90 a barrel.

Zhu also said China will choose an "appropriate time" to launch a fuel tax which could greatly increase petrol costs for motorists, to replace road tolls and maintenance charges.

China has long been considering a fuel tax on sales, but the scheme has been delayed over the years as oil prices and inflation soar.

"The time is ripe to impose it now," Zhu said.

(Shanghai Daily December 20, 2007)