BIZCHINA> Review & Analysis
Need for fuel tax
(China Daily)
Updated: 2008-11-22 09:46

Media reports about the imminent introduction of a fuel tax is unlikely to bring about real progress in the reform of China's oil pricing mechanism if policymakers keep dodging the issue.

The fact that the country is falling far behind its schedule to raise energy efficiency by 20 percent between 2006 and 2010 should make it a compelling case for the pricing authorities to do what they can now.

It was reported recently that the National Development and Reform Commission, the country's top economic planning body, is working with other government departments on reforming China's retail oil price mechanism and introducing a fuel tax.

More inspiringly, it was even predicted that such reform would come in 20 days.

The reform of the outdated oil pricing mechanism seems to be gathering momentum nowadays.

The introduction of a fuel tax has been long overdue in this country due to concerns ranging from runaway inflation to an excessive burden on certain consumers.

When triple-digit oil prices became a reality early this year, it was no surprise that the government had tried hard to keep a tight lid on a number of key prices, such as on gasoline, to rein in soaring inflation.

But now, with international crude oil prices falling almost $100 a barrel below its July peak to less than $50 a barrel, officials need to worry more about deflationary pressure instead of consumer inflation.

Policymakers should seize the opportunity created by the current decline in oil prices to introduce the needed fuel tax.

The current road maintenance fees that the government collects from drivers according to the size or type of their vehicles obviously cannot encourage efficient use of energy as a fuel tax can do. Introduction of the latter will push drivers to not only reduce unnecessary mileage but also switch to cars of higher fuel efficiency.

The argument that a fuel tax may put an extra burden on consumers does have a point given that a large number of farmers need to fuel their agricultural machines.

Yet, this is actually not a question about fuel tax. It is more about how the government can swiftly provide targeted subsidies to specific groups like farmers or the urban poor to offset the rise in their production or living costs.

There are still many other concerns that have prevented policymakers from taking decisive action to shake up the current oil pricing mechanism.

Nevertheless, none of those reasons should stand in the way for the country to considerably improve energy efficiency and pursue sustainable development.

More than a decade after the fuel tax was first proposed in the country, any more talk that the reform is under consideration will only sound hollow and irresponsible given the country's urgent need to raise energy efficiency.

No time should be wasted in this regard if the country is to meet its five-year energy goal and fulfill its long-term development strategy.

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