China Lifts Tariff on CBM, Oil and Gas Equipment Imports

China’s rapidly increasing domestic demand for energy is driving  the country to boost its production of key natural resources. In the three documents released on August 8, the Ministry of Finance (MoF), the General Administration of Customs (GAoC) and the State Administration of Taxation (SAT) together announced the decision to exempt coal bed methane (CBM), oil, and natural gas exploration equipment from import duties.

Tariff elimination on CBM equipments
According to the “Circular on Import Duty Exemption for CBM Exploration and Development Materials (caiguanshui [2011] No.30),” during China’s 12th Five-Year-Plan period between January 1, 2011 and December 31, 2015, China CBM Group Co. Ltd. – the company that explores for, develops and produces CBM – is exempt from both tariffs and value-added tax when importing equipment, instruments, machinery and accessories that are directly used for developing CBM resources. CBM Group’s domestic and foreign partners are also able to receive the same tax incentive.

The favorable tax policy is also available to other domestic companies that are involved in the industry, but those companies will have to file applications for tax exemption before the actual imports take place and obtain approval from the MoF, GAoC and SAT.

The new incentive is aimed at helping China reach the goal it set in its 12th Five-Year Plan of doubling the country’s CBM production to 21 billion cubic meters per year between 2011 and 2015, while the country only realized 20 percent of its five-year production target between 2005 and 2010.

Tariff elimination on oil and natural gas equipment
According to the two circulars on import duty elimination for materials and equipment used in onshore and offshore oil and natural gas exploration and development (caiguanshui [2011]No.31 and caiguanshui [2011]No.32), during the period between January 1, 2011 and December 31, 2015, tax exemptions will be provided to the imports of domestically unavailable equipment, instruments and special-purpose tools that are directly used for oil and gas exploration and development.

Exploration projects that will likely receive the tax incentives shall be located in designated areas such as the Gobi desert; onshore blocks jointly developed by Chinese and foreign companies with government approval; inland seas; territorial waters; and continental shelves. All the designated onshore areas are listed in Attachment One to Circular No.31.

Circular No.32 specifies that jointly-owned projects by Chinese and foreign companies approved before December 31, 1994 can continue enjoying tax exemptions when involved companies import the aforementioned equipment for exploration purposes. All these “old” projects are specifically listed in Attachment Two to Circular No.32.

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