Against the background of the extreme imbalance between China's energy reserves and energy consumption structure, coal-to-oil technology is of great significance in reversing China's abnormally high degree of external dependence on oil and gas resources, promoting the efficient and clean utilization of resources, and guaranteeing national energy security. However, as the end products of coal-to-oil technology are refined oils such as gasoline and diesel, although the current tax law does not include coal-based liquid products in the consumption tax items, the 2022 National Special Rectification Action for the Refined Oil Industry will also include the projects of coal indirect liquefaction process technology in the scope of verification, resulting in the coal-based stabilized light hydrocarbons as an intermediate product is also faced with the risk of excise tax audits.

I. Development and Types of Coal-to-Oil Processes

(I) Development history of coal-to-oil process

The research and development of coal-to-oil process began in the early 20th century, Germany took the lead in the development of coal-to-oil industry during the shortage of oil resources in the Second World War, until the discovery of large-scale oilfields in the Middle East in the 1950s, countries began to focus on oil extraction, coal-to-oil process was shelved for a time. 1970s after the outbreak of the oil crisis, countries once again realized the importance of coal-to-oil process, and developed a number of new coal-to-oil process. However, due to cost and other reasons, the coal-to-oil process was once shelved. However, the development of coal-to-liquid process has been slow due to cost and other reasons. In the world, coal-to-oil process has attracted a lot of attention, which is closely related to the shortage of oil resources.

China's energy reserves show the characteristics of coal-rich, oil-poor, gas-poor, oil and gas reserves accounted for only 3%, while from the perspective of the energy consumption structure, oil and gas accounted for 30%, which leads to China's oil and natural gas dependence on foreign countries is abnormally high, which seriously affects China's economic development, national defense construction and energy security. In this context, the development of coal-to-oil technology has become an important strategic choice for China's energy supply security. Since the founding of the People's Republic of China, China has begun the research on coal-to-oil process, and further accelerated the research and development after the reform and opening up, and since the 21st century, the coal-to-oil technology has made great progress, and the large-scale production has developed rapidly.

(II) Types of coal-to-oil process

Coal-to-oil process is a technology to produce hydrocarbon fuels and petrochemical products by using coal as raw material and a series of physical and chemical reactions under high temperature and high pressure conditions, which can transform low value-added coal into high value-added gasoline, diesel, liquefied petroleum gas and other products. At this stage, coal-to-oil technology mainly includes coal direct liquefaction technology, coal indirect liquefaction technology, coal-based methanol-to-oil technology and coal tar hydrogenation-to-oil technology.

1.Coal direct liquefaction technology

Coal direct liquefaction technology refers to the coal in high temperature and high pressure conditions, through catalytic, hydrogenation and other solid coal into liquid oil, the production of clean liquid fuel technology. Specifically, the process flow of this technology is as follows:

At present, the direct liquefaction technologies that have been put into operation on a large scale include the German IGOR process, the U.S. HTI process, the Russian FFI process, the Japanese NEDOL process and the Chinese Shenhua ST process.

2.Coal indirect liquefaction technology

Coal indirect liquefaction technology refers to the use of physical means of coal gasification, and then under a certain temperature and pressure and catalyst for desulfurization of gaseous coal, denitrogenation, deoxygenation and other purification processes, catalytic way to convert the gas into liquid oil process technology. The core of this technology is the Fischer-Tropsch synthesis process, which has the following flow:

II. Consumption Tax Collection of Naphtha and Taxability Analysis of Coal-Based Stabilized Light Hydrocarbons

As mentioned before, coal-based stabilized light hydrocarbon is a product of coal indirect liquefaction process. At present, GB9053-2013 Stabilized Light Hydrocarbon specifies the national standard of stabilized light hydrocarbon, but the scope of application of this standard is limited to "stabilized light hydrocarbon of oil and gas field", which leads to some coal chemical enterprises to be characterized by tax authorities as naphtha to recover consumption tax even if they produce stabilized light hydrocarbon in line with national standard and have obtained inspection certificates. This has led to some coal chemical enterprises, even if they produce stable light hydrocarbons complying with the national standard and have obtained inspection certificates, being characterized by the tax authorities as naphtha for the purpose of levying excise tax, which should be analyzed in the context of the current excise tax policy and the national standard.

(I) Definition of naphtha in the current consumption tax policy

In 2008, the Circular of the Ministry of Finance and State Administration of Taxation on Increasing the Consumption Tax Rate of Refined Products (Cai Shui [2008] No. 167) adjusted and improved the scope of consumption tax on refined products, and the Circular adopted the definition of "generalization + enumeration" to clarify the scope of naphtha. In order to strengthen the management, plug the loopholes and fair the tax burden, Circular No. 47 of 2012 put forward the situation of levying consumption tax on deemed naphtha on the basis of this Circular, Circular No. 50 of 2013 refined the above provisions, and Circular No. 39 of 2015 made minor adjustments to form the current policy of levying and managing the consumption tax on naphtha. The details are as follows:

 (II) Practical Misconceptions: Crude Oil-Based Stabilized Light Hydrocarbons Are Considered as Naphtha for Collection of Consumption Tax

In the article "Tax Lawyer's Detailed Explanation: Should Stabilized Light Hydrocarbons be Collected Consumption Tax According to Naphtha?" As mentioned in the article, there is a big difference between crude oil-based stabilized light hydrocarbons and naphtha in terms of nature and use, and stabilized light hydrocarbons do not belong to naphtha, and the preparation of stabilized light hydrocarbons does not belong to the production of taxable consumer goods.

On the one hand, crude oil-based stabilized light hydrocarbons do not belong to the taxation scope of naphtha. Crude oil-based stabilized light hydrocarbons are liquid petroleum products extracted from natural gas condensate or crude oil, with pentane and heavier hydrocarbons as the main components. It neither belongs to the scope of taxation listed in Annex 2 to the Circular of the Ministry of Finance and the State Administration of Taxation on the Increase of Consumption Tax Rate for Refined Products (Cai Shui [2008] No. 167) on the Scope of Consumption Tax on Refined Products Annotation and other refined products oils, nor belongs to other taxable consumer goods tax items.

On the other hand, as neither the raw materials nor the products are taxable consumer goods, the preparation of stabilized light hydrocarbons using crude oil as raw material does not belong to the production of "producing taxable consumer goods from non-taxable consumer goods" or "producing taxable consumer goods from A taxable consumer goods to B taxable consumer goods".

Therefore, according to the "Announcement of the State Administration of Taxation on Relevant Policy Issues of Consumption Tax" (Announcement of the State Administration of Taxation No. 47 of 2012), the production of stabilized light hydrocarbons by a petrochemical enterprise shall not be considered as "production of taxable consumer goods from non-taxable consumer goods" or "production of taxable consumer goods from A taxable consumer goods to B taxable consumer goods". The production of stabilized light hydrocarbons by petrochemical enterprises may be excluded from the scope of consumption tax as long as they meet the conditions of "conforming to the corresponding provisions of national standards or petrochemical industry standards" and "obtaining the certificates issued by provincial-level quality supervision departments". In practice, some tax authorities believe that stabilized light hydrocarbons belong to light oil and should be treated as naphtha to pay consumption tax, which lacks direct legal basis.

(III) Coal-based stabilized light hydrocarbons are reasonable with reference to GB9053-2013.

For petrochemical enterprises, there are three main situations in which the preparation of stabilized light hydrocarbons from crude oil is subject to tax adjustments: one is that no inspection certificate has been obtained, or no consumption tax has been paid for the stabilized light hydrocarbons produced before obtaining the inspection certificate; the second one is that the organization issuing the inspection certificate does not meet the requirements of "recognized by the State Certification and Accreditation Administration of the People's Republic of China or by the provincial quality supervision departments" and "qualification and certification". Secondly, the organization issuing the inspection certificate does not meet the qualification conditions of "recognized by the State Certification and Accreditation Administration or provincial quality supervision departments" and "the certificate of qualification recognition states that it has the monitoring capability of stabilized light hydrocarbon"; thirdly, the tax authorities directly qualify the stabilized light hydrocarbon as naphtha for the purpose of levying excise tax. However, for coal chemical enterprises, in addition to the above cases, they may also face the risk of being treated as naphtha for the purpose of levying consumption tax due to the fact that coal-based stabilized light hydrocarbons are not applicable to GB9053-2013 Stabilized Light Hydrocarbons.

In fact, although the coal-to-oil process has been developed in China for many years, at the time when GB9053-2013 was formulated, coal-based stabilized light hydrocarbons were not widely promoted and were not the main product of coal-to-oil, and it was not until 2015 that Xinneng Energy Co. Ltd. put forward the feasibility report of a project to produce stabilized light hydrocarbons from the rich local coal resources in Inner Mongolia as raw material in order to satisfy the market demand for gasoline blending oil. Therefore, GB9053-2013 limits the scope of application of the quality standard for stabilized light hydrocarbons to historical conditions and statutory authority. First, at that time, coal-based stabilized light hydrocarbons did not have the conditions for large-scale industrial production, and there was no need to formulate national standards for them; second, GB9053-2013 was proposed by the National Petroleum and Natural Gas Standardization Technical Committee, whose duty is mainly to be responsible for the formulation and revision of oil and gas industry standards in the upstream field of the petroleum industry under the leadership of the National Energy Administration, and does not involve the field of coal chemical industry. As a result, the national standard of coal-based stabilized light hydrocarbons is in a blank state.

Due to the late start of the coal-based stabilized light hydrocarbon industry in China, there is no special consumption tax tax policy for coal-based oil products, and in view of the consistency of the final product, tax enforcement has been referring to the application of the consumption tax policy for crude oil-based oil products. Similarly, the quality standard of coal-based stabilized light hydrocarbons can also refer to GB9053-2013 Stabilized Light Hydrocarbons. The reason is that, from the viewpoint of product nature, for the stabilized light hydrocarbons produced by coal chemical enterprises, although chemical reactions such as hydrogenation and liquefaction and Fischer-Tropsch synthesis are generated in the production process, the substances produced still belong to stabilized light hydrocarbons, and are no different from the stabilized light hydrocarbons based on crude oil in terms of product name and quality standards. In terms of differentiation from taxable refined oil, the interpretation of the Announcement on Supplementary Provisions on Relevant Policy Issues of Consumption Tax states that "products with the same or similar appearance and form and main raw materials required for production as taxable refined oil can be regarded as non-taxable products if they comply with the national standards or industry standards of such products and provide test certificates to the competent tax authorities for filing in accordance with regulations ". From the production practice of coal chemical enterprises, the aforementioned project feasibility report of Xinneng Energy for the production of stabilized light hydrocarbons is also based on GB9053-2013 when determining the product specifications. Therefore, it is reasonable to refer to GB9053-2013 for coal-based stabilized light hydrocarbons.

(IV) Levying consumption tax on coal-based stabilized light hydrocarbons is contrary to the regulatory purpose of consumption tax.

The significant feature of consumption tax levy is regulatory, and the purpose of levying consumption tax on refined oil products is to promote resource conservation, inhibit overconsumption of energy, reduce emissions of air pollutants, and accelerate the change of the mode of energy production and consumption. Therefore, the levy of consumption tax on refined oil products is based on the resource endowment of oil-poor and less-gas-poor in our country, and it is to cope with the tightness of the oil and gas resources rather than the universal levy. Unlike oil and gas resources, China's coal resource reserves are relatively affluent. Coal-to-oil technology not only improves the added value of the product, but also is an effective way to utilize coal resources in a clean and efficient manner. Compared with the traditional refining and chemical industry, the coal-to-oil production process is able to remove and recycle sulfur, nitrogen and other elements of air pollutants through hydrogenation, and the reuse rate of sewage water is also higher, and high-quality diesel oils originating from coal are also cleaner than the common diesel oils. Therefore, from the perspective of purpose interpretation, "other raw materials" that can be used for the production and processing of refined oil products should be interpreted as "other raw materials related to crude oil" rather than any raw materials. Intermediate products generated in the process of preparing crude oil from coal, such as stabilized light hydrocarbons, liquid paraffin, etc., do not belong to the scope of application of Announcement No. 47 of 2012 from the viewpoint of products and raw materials, and should not be subject to consumption tax.

However, under the current refined oil levy policy, coal-to-oil projects are facing uncertainty of tax cost, and in the case of low oil price, levying consumption tax on coal-based stabilized light hydrocarbons will bring high tax cost to coal-to-oil enterprises, and part of the coal-to-oil projects have been put on hold due to the high cost of coal and consumption tax. It can be seen that, although the end product of coal-to-oil is also refined oil, due to different taxable conditions and different correlation between cost and pricing, copying the consumption tax policy of refined oil to regulate the coal-to-oil industry not only fails to guide the healthy development of the coal-to-oil industry, but also plays a restraining role. Therefore, levying consumption tax on coal-based stabilized light hydrocarbons lacks both the necessity and economy of regulation, and violates the taxation principle and regulation purpose of consumption tax.

To sum up, coal-based stabilized light hydrocarbons should not be subject to consumption tax.

III. Summary

In the coal-to-oil industry, stabilized light hydrocarbons are still intermediate products in the production process of refined oil products, which do not belong to naphtha and should not be subject to consumption tax. However, if the tax authority determines that the coal-based stabilized light hydrocarbon belongs to naphtha, or denies the application of GB9053-2013 Stabilized Light Hydrocarbon, and treats it as naphtha for the purpose of levying consumption tax, the coal chemical enterprise will also face the risk of recovery of consumption tax and late payment fee. If the taxpayer is notified by the tax authorities and ordered to pay the tax by the deadline, and still fails to declare and pay the tax after the deadline, the taxpayer will also be recognized as tax evasion, and will be held legally liable for a fine of 0.5 to 5 times of the underpaid tax. If it constitutes a crime, it will also face the criminal risk of tax evasion.

Therefore, for enterprises with similar disputes with tax authorities, it is recommended to take legal remedy procedures such as administrative reconsideration, administrative litigation and review of normative documents in a timely manner, so as to properly cope with and resolve the risks of consumption tax and safeguard their legitimate rights and interests.