BEIJING: China’s Ministry of Finance announced that it will be raising the threshold for windfall taxes on oil and gas output starting January 1. The new threshold will be set at $65 a barrel, up $10 from $55 a barrel, the price set back in November 2011, according to Reuters.
A 20% tax is charged to oil being sold at $65 a barrel, rising to 25% between $70 and $75 and increasing 5% with every $5 increase in oil prices, with the highest tax burden of 40% being applied when crude prices are at or above $85 a barrel.
It’s an encouraging policy move by the government because the oil price slump is putting a lot of pressure on cash flow,” Gordon Kwan, Nomura’s Hong Kong-based head of regional oil and gas research, told Bloomberg. “China needs to reduce the windfall profit tax to accommodate struggling producers. Otherwise there’s a lack of incentive to invest.”Raising the threshold would increase profits of China’s biggest oil companies by at least 10% next year, if other factors are unchanged, according to UOB Kay Hian Ltd. PetroChina (ticker: PTR) shares were up more than 5% today on the news, while CNOOC Ltd. rose as much as 2.5%.