China’s decision to tax MTBE will raise blended gasoline costs

China’s State Administration of Taxation has put methyl tertiary butyl ether (MTBE) and aromatics in the list of products subject to consumption tax; the policy will take effect on January 1, 2013. The move to subject to consumption tax certain previously exempted products was made to combat tax evasion, the government said. The tax on MTBE will be the same as the present rate imposed on naphtha, which is CNY1,385 (US$220) per metric ton (mt). Products obtained from naphtha that are used in manufacturing petrochemicals will continue to be exempted from consumption tax. China’s consumption tax is levied on entities and individuals who are producing, processing or importing taxable consumer goods.
MTBE and aromatics are commonly blended into gasoline to raise its octane level. Industry sources said the imposition of a consumption tax on these products could raise gasoline-blending costs and make importation of finished gasoline relatively more cost effective.
With the rising demand for gasoline in China, a setback in the local production due to increased costs will make the country dependent on imports, and would deprive local producers of their business advantages. (December 3, 2012)