China Tax Alert: Energy & Natural Resources Focus - Issue 2, June 2013
On 30 May 2013, the State Administration of Taxation (SAT) issued Announcement 27 which states that oil and gas companies engaging in coalbed methane and shale gas production, or providing production services for coalbed methane and shale gas production, are subject to VAT in accordance with the Ministry of Finance and the State Administration of Taxation Circular on VAT Administration for Oil and Gas Field Enterprises. It clarified that oil and gas companies that provide productive services for the development of unconventional gas such as coalbed methane and shale gas should be subject to 17 percent VAT. This is consistent with the VAT treatment for oil and natural gas projects and thus delivers a positive message to taxpayers. It is worth noting that if the productive services fall within the VAT pilot programme, they should be subject to 6 percent VAT based on Circular 111 and Circular 37. The announcement will take effect from 1 July 2013 and is not retroactive.