China on Saturday gave further explanation on the proposed reform of fuel tax and pricing in a bid to dispel misunderstanding that a higher consumption tax will mean higher pump prices.

The authorities on Friday released a draft reform plan to solicit public opinions till Dec. 12. It had been long advocated by experts as key for energy saving and economic structure transform.

The plan, scheduled to take effect on Jan. 1, will abolish six fees now charged for road or waterway maintenance and management.

But drivers will pay higher fuel consumption taxes. Gasoline taxes will be raised from 0.2 yuan (about 3 U.S. cents) per liter to 1 yuan and diesel taxes from 0.1 yuan per liter to 0.8 yuan.

The government reiterated its Friday's statement that the pump prices, which include the higher tax, won't be raised and the reform won't increase costs for fuel consumers.

The tax is reflected in the pump prices and isn't an additional increase to the retail prices, said a joint statement by the National Development and Reform Commission (NDRC), Ministry of Finance, Ministry of Transport and State Administration of Taxation.

The proposed tax is lower than the level in the European Union and also in the neighboring countries and regions, it said.

The draft said China's domestic crude oil prices should be set directly in line with world prices, but the link should be controlled and indirect for refined petroleum prices.

There will be a ceiling on pump prices as part of the plan. The government said it will continue to properly regulate domestic pump prices to prevent the negative impacts of huge fluctuations in the international oil prices on the domestic market.

The reform helps to promote a healthy development of the oil sector and energy saving, and to ensure domestic fuel supply and a stable economic growth, said the statement.

But it said the government will increase subsidies to farmers, taxi drivers, and sectors of fishing, forestry, and public transport.

The reform will be a significant step towards liberalizing retail fuel prices, said researcher Zhou Dadi from the Energy Research Institute of the NDRC.

China has been pushing for fuel tax reform for many years, and the idea of a fuel tax was raised as early as 1994. Both officials and economists said the plunge in global oil price presents a window of opportunity for this reform.

The world crude oil price has plunged almost 70 percent from a peak of 147 U.S. dollars per barrel in mid-July.

Even with oil prices tumbling so much, Chinese drivers are paying much more than those in many other countries because domestic fuel prices have been unchanged since June. Government-set prices are changed only infrequently.

The pump prices are higher than the levels in the United States, but lower than that in some European and Asian nations, said the statement. But it noted this is because of oil resource shortages in the European and Asian countries and their intention to use higher prices to encourage energy saving.

(Xinhua News Agency December 7, 2008)