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Back to National Funding of Road Infrastructure

Funding for road construction and maintenance in China derives from a combination of government and commercial sources.  Only a small share of funding has been provided by central government budgetary revenue.  A 10% vehicle purchase tax is collected on the purchase of vehicles; revenue of the special taxation is dedicated to road development projects.  Tolling is widely allowed, which is believed to have enabled rapid expansion of the country’s road system over the last two decades. 

Effective 2009, a fuel tax reform abolished road maintenance fees, which had been a stable source of funding for road maintenance..  The reform also significantly increased the oil product consumption tax, revenue from which is to be used not only to substitute the road maintenance fees, but also for several other purposes.

I.  Introduction

Under the Highway Law of the People’s Republic of China (Highway Law), funding of road construction may come from

  • appropriations made by various levels of government, including those deriving from special funds collected through taxation;
  • loans from domestic and foreign banks or foreign governments; 
  • investment made by domestic or foreign economic organizations;
  • funds raised from enterprises and individuals to build highways (which must be on voluntary basis as required by the Highway Law); and
  • funds raised through other means that conform to laws or regulations of the State Council.[1] 

Tolling revenue is required by law to be limited to highway uses.[2]  According to the Highway Law, upon approval, tolling is allowed for highways built with loans, funds raised from enterprises and individuals, and investment made by economic organizations.[3] 

In practice, toll financing has been used widely, which is believed to have enabled rapid expansion of the country’s road system over the last two decades.[4]  Only a small share of funding has been provided by central government budgetary revenue.  According to the Ministry of Transport, in the year 2012, a total of RMB1112.490 billion (about US$183.93 billion) was invested in highway construction nationwide.  Only 1.8% of the overall funding came from central government budgetary revenue, and 17% from vehicle purchase tax (VPT) revenue.  Local government self-financing counted for 33%, domestic loans 36.4%, and foreign investment 0.4%.[5]

Before 2009, road maintenance fees (RMFs) were collected from owners of vehicles for the maintenance, repair, technology reform and improvement, and administration of highways, based on the rational of “who uses, maintains.”[6]  The RMFs was abolished along with five other road-use surcharges during a fuel tax reform plan that was implemented from 2009.[7] 

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II. Tolls

A. Toll Roads

Under the Regulations on Administration of Toll Roads, upon approval and in accordance with the laws, tolls may be collected from users of

  • Government-repaying-loan highways: highways constructed by a competent department for transportation under a local government through a loan or funds raised from enterprises or individuals; and
  • Commercially operated highways: highways constructed with investments provided by domestic or foreign economic organizations, or highways with the right to collect tolls on government-repaying-loan highways assigned to such organizations.[8]

B.  Limits on Lengths of Toll Collecting

The number of years that tolls can be collected for each toll road is subject to approval and is limited by law to a maximum period of time, as follows:

  • For government-repaying-loan highways, fifteen years, which may be extended to twenty years for those highways located in a central or western province.
  • For commercially operated highways, twenty-five years, which may be extended to thirty years for those highways located in a central or western province.[9]

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III. Vehicle Purchase Tax

The Chinese vehicle purchase tax (VPT) is a special tax dedicated to road development projects.  It provides a stable funding source for road development (17% in 2012).  According to statistics released by the Ministry of Finance, the VPT revenue in 2013 was RMB259.6 billion (about US$42.9 billion).[10]

A.  Vehicle Purchase Surcharges

A 10% surcharge on purchasing vehicles was first created in 1985.  According to the document creating the vehicle purchase surcharge, the entire income from the surcharges must be used to fund the country’s road development.[11]

B.  Taxable Vehicles and Rate

On January 1, 2001, the surcharge was replaced by a formal VPT.  Vehicles subject to the tax include automobiles, motorcycles, electric vehicles, trailers, and transport vehicles for agricultural use.[12] 

The VPT rate remains 10% on the taxable price of vehicles,[13] to be paid in a lump sum within sixty days after the date of purchase and before a vehicle is registered.[14] 

According to the regulations governing the VPT, the tax is levied only once on each vehicle, so that purchasing a vehicle for which a VPT has been paid is not subject to the tax for a second time.[15] 

C.  Collecting Authority and Uses of Tax Revenue

The VPT is collected by the central government, and allocated to local governments to fund road-development projects.[16]  In addition to construction projects for roads, bridges, and tunnels, construction projects for road passenger and cargo hubs (including logistics parks (areas zoned for purposes relating to logistics) and inland waterways may also be funded by VPT revenue.[17]

Annual revenues from the VPT have grown steadily in recent years, primarily due to the rapid increase in vehicle ownership.  According to a report by the Asian Development Bank, it increased from RMB21.6 billion (about US$331 million) in 2000 to RMB116.4 billion (about USD$17.8 billion) in 2009, of which about 90% was used for highway-related purposes.[18] 

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IV. Fuel Tax Reform

A.  Road Maintenance Fees

Road Maintenance Fees (RMFs) used to be a stable source of funding for road maintenance.  RMF revenue was dedicated to highway maintenance, repair, technology reform and improvement, and administration, according to the Provisions on the Administration of Collection of Road Maintenance Fee.[19] 

B.  Fuel Tax Reform

The central government had been contemplating a fuel tax reform for many years in order to address several policy issues, including: (1) concerns arising from collecting RMFs, which were collected by various local governments with a wide variety of fee levels, and toll road charges; (2) demand for oil, which is rapidly rising; and (3) environmental concerns, etc.[20] 

As early as in 2000, when the government decided to replace the vehicle purchase surcharges with the VPT, a fuel tax reform was also proposed to replace the RMFs and other road use surcharges with a new fuel tax.[21] 

However, when the State Council released the final fuel tax reform plan in late 2008 after several years of contentious debate, it significantly marked up the rate of the existing consumption tax on oil products instead of creating a new fuel tax.[22]  Under the final fuel tax reform plan, which took effect on January 1, 2009:

  • the RMFs, waterway conservation fees, road transport management fees, road passenger and freight surcharges, water transportation management fees, and water passenger and freight surcharges were abolished; and
  • the rate of the existing consumption tax on oil products was raised by RMB0.8 (about US$0.13) per liter for gasoline, RMB0.7 (about US$0.12) for diesel, and corresponding amounts for other oil products.[23]

C.  New Oil Product Consumption Tax (Fuel Tax)

1.  Tax Rates

The consumption tax on oil products is assessed as a fixed amount per liter. [24]  Prior to the fuel tax reform, the consumption tax per liter on gasoline was RMB0.2 (about US$0.03) and on diesel RMB0.1 (about US$0.02), which was “fairly negligible.”[25]  The new rates of consumption tax on oil products are shown in the table below.

Table: New Rates of Consumption Tax on Oil Products

Tax Category

Tax Rate

Oil Product:

 

1. Gasoline

 

   (i) Unleaded gasoline

RMB1.0 (US$0.17)/Liter

   (ii) Leaded gasoline

RMB1.4 (US$0.23)/Liter

2. Diesel

RMB0.8 (US$0.13)/Liter

3. Airplane kerosene

RMB0.8 (US$0.13)/Liter

4. Naphtha

RMB1.0 (US$0.17)/Liter

5. Solvents

RMB1.0 (US$0.17)/Liter

6. Lubricants

RMB1.0 (US$0.17)/Liter

7. Fuel Oil

RMB0.8 (US$0.13)/Liter

Source: Notice of the Ministry of Finance and State Administration of Taxation on Raising Oil Product Consumption Tax (Cai Shui [2008] No. 167, issued Dec. 19, 2008, effective Jan. 1, 2009), http://www.chinatax.gov. cn/n8136506/n8136593/n8137537/n8138502/8734242.html.

2.  Collection

Unlike the previous RMFs, which were collected by various local governments, the new fuel tax is a central tax collected by the State Administration of Taxation (and Customs in cases of imports).  The tax is currently imposed on the manufacturers and importers of oil products.[26]

3.  Uses of Tax Revenue

The newly-raised revenue from the oil product consumption tax will first be used as a substitute for RMFs and other road-use charges that were abolished by the reform, according to the reform plan.[27]  A significant factor of the fuel tax reform is that, under the reform plan, authorization for current and future tolls on Class II Highways[28] will gradually be removed.  Accordingly, revenue from the new fuel tax will also be used to compensate for the loss of the toll fees from these roads.  The fuel tax reform plan also pledged to subsidize grain producers, the poor, and public welfare sectors.[29]

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Laney Zhang
Foreign Law Specialist
March 2014
 


[1] 人民共和国公路法 [Highway Law of the People’s Republic of China], art. 21, 2004 Laws of the People’s Republic of China 173–92.

[2] Id.

[3] Id. art. 59.

[4] Asian Development Bank, Financing Road Construction and Maintenance After the Fuel Tax Reform (hereinafter ADB Report) at 1 (2012), http://www.adb.org/publications/financing-road-construction-and-maintenance-after-fuel-tax-reform.

[5] 2012年公路水路交通运业发统计 [2012 Highway and Waterway Transportation Industry Statistical Bulletin] (Apr. 25, 2013), http://www.moc.gov.cn/zhuzhan/zhengwugonggao/jiaotongbu/guihuatongji/ 201304/t20130426_1403039.html.

[6] 公路养路征收管理 [Provisions on the Administration of Collection of Road Maintenance Fee] (Jiao Gong Zi [1991] No. 714, Oct. 10, 1991) art. 2, WestLawChina.

[7]院关于施成品油价格和税改革的通知 [Notice of the State Council on Implementing the Oil Product Price and Tax Reform] (Guo Fa [2008] No. 37, Dec. 18, 2008) (hereinafter Fuel Tax Reform Plan), http://www.gov.cn/xxgk/pub/govpublic/mrlm/200812/t20081219_33048.html

[8] 公路管理条例 [Regulations on Administration of Toll Roads] (published by the State Council on Sept. 13, 2004, effective Nov. 1, 2004), art. 10, http://www.gov.cn/zwgk/2005-05/23/content_241.htm.

[9] Highway Law, supra note 1, art. 14.

[10] 2013年全国公共政收入12.9亿 完成全年算略有超收 [2013 National Public Revenue 12.9 Trillion, Slightly Over Annual Budget], XinhuaNet (Jan. 23, 2014), http://news.xinhuanet.com/fortune/2014-01/23/c_119101065.htm.

[11]车辆购置附加征收 [Measures for the Imposition of Surcharges for Purchases of Motor Vehicles] (issued by the State Council on Apr. 2, 1985, effective May 1, 1985, abolished Oct. 6, 2001), WestLawChina.

[12] 人民共和国车辆购置税行条例 [Interim Regulations of the People’s Republic of China on Vehicle Purchase Tax] (issued by the State Council on Oct. 22, 2000, effective Jan. 1, 2001) (hereinafter VPT Regulations), art. 3, http://www.gov.cn/banshi/2005-08/19/content_24868.htm

[13] Id. arts. 4 & 5.  In January 2009, the VPT rate was reduced from 10% to 5% for certain passenger cars to encourage car sales as part of the economic stimulus package while incentivizing energy savings and achieving emission reductions.  The rate was then adjusted to 7.5% in early 2010 but reverted to 10% in 2011 for all vehicles.  ADB Report, supra note 4, at 1.

[14] VPT Regulations arts 13 & 14.

[15] Id. art. 8.

[16] 车辆购置税用于交通运重点专项资金管理 [Interim Measures on Special Funds for Funding Key Transportation Projects with Vehicle Purchase Tax] (Cai Jian [2011] No. 93, Mar. 28, 2011), art. 2, http://www.moc.gov.cn/zizhan/siju/caiwusi/zhengceguiding/guizhangzhidu/201302/t20130227_1372317.html.

[17] Id. art. 3.

[18] ADB Report, supra note 4, at 9.

[19] 公路养路征收管理 [Provisions on the Administration of Collection of Road Maintenance Fee] (Jiao Gong Zi [1991] No. 714, Oct. 10, 1991), WestLawChina.

[20] Fuel Tax Reform Plan, supra note 7.

[21]交通和车辆改革施方案 [Plan of Implementing Transportation and Vehicle Taxes/Fees Reform] (Guo Fa [2000] No. 34, Sept. 4, 2000), http://www.gov.cn/gongbao/content/2001/content_60855.htm.

[22] Fuel Tax Reform Plan, supra note 7.

[23] Id.

[24] 关于提高成品油消税税率的通知 [Notice of the Ministry of Finance and State Administration of Taxation on Raising Oil Product Consumption Tax] (Cai Shui [2008] No. 167, issued Dec. 19, 2008, effective Jan. 1, 2009), http://www.chinatax.gov.cn/n8136506/n8136593/n8137537/n8138502/8734242.html.

[25] ADB Report, supra note 4, at 20.

[26] Fuel Tax Reform Plan, supra note 7.

[27] Id.

[28] Chinese highways are classified as Expressways, Class I Highways, Class II Highways, Class III Highways, and Class IV Highways in terms of technical grading.  Highway Law, supra note 1, art. 6.

[29] Fuel Tax Reform Plan, supra note 7.