China announces VAT rebate on domestic fuel oil for bonded bunkering

Singapore — China has announced a long-awaited, full value-added-tax rebate, effective February 1, on fuel oil, paving the way for domestic producers to supply bunker fuel to ships plying international routes at Chinese ports.

"The tax rebate (or exemption) policy on goods for export is being applied to fuel oil bunkered by ships plying international routes at Chinese ports, and the VAT rebate rate is 13%," the Ministry of Finance, State Taxation Administration and General Administration of Customs said in a joint statement.

As a result of the full 13% VAT rebate, the Yuan 1,218/mt ($176/mt) consumption tax on fuel oil will also be refundable under a joint MOF and SAT policy announced in May 2012.

Meanwhile, market sources were waiting for more details on the tax rebate process, including export quota arrangements for tax rebate.

China's key oil products exporters had a meeting with the Ministry of Commerce on Sunday to apply for a total 24 million mt export quotas for fuel oil, sources with knowledge with the matter said Wednesday.

"Oil companies tried to apply as much quota as possible, but it is uncertain the volume that MOFCOM will award," one of the source said.

Currently, almost all fuel oil supplied to ships docking at Chinese ports is typically imported, mostly from Singapore and South Korea.

This trade flow could see some alterations once domestic refiners are able to supply to the bonded facilities.

China imported 14.79 million mt of fuel oil in 2019, down 10.9%, GAC data showed.

The country's bonded bunker fuel consumption is about 12 million mt/year, according to bunkering sources, while Chinese refiners have capacity to produce 18.5 million mt/year of very low sulfur fuel oil, which meets IMO 2020 with the sulfur content at 0.5%.