China Clarifies Consumption Tax Exemption for Biodiesel Production

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Jul. 4 – Following its announcement in December last year that pure biodiesel made from waste plant and animal oil is exempt from consumption tax, the Chinese government has recently clarified the actual scope of animal and plant oils subject to such tax exemption. Experts say the tax incentives will not only largely support China’s emerging biodiesel market, but will also effectively prevent waste oil from flowing back to dining tables.

China’s Ministry of Finance and State Administration of Taxation co-issued the “Circular to Clarify the Application Scope of Consumption Tax Exemption for Pure Biodiesel Made from Waste Animal and Plant Oils” (Caishui [2011] No.46) on June 15. The circular defined the scope of consumption tax-free waste animal and plant oils for biodiesel production as follows:

  • Inedible animal and plant fats generated from food and beverage services, food processing, and family life, such as swill oil, waste frying oil, and oil buildup in the kitchen ventilation system
  • Fats extracted from the waste of animal slaughter or leather processing, and inedible fats generated from meat processing
  • The mixture of fatty acid, glyceride and a small amount of impurities generated from refining and processing of edible oils and fats, such as acid oil, fatty acid, palm acid oil, fatty acid of palm oil, oil clay and deodorizer distillate
  • Oils and fats generated from oil processing or storage and do not meet food standards

A recent commentary by Ma Diming on says the favorable tax policy is hoped to encourage oil processors to make legal use of waste oil. Last year, China reported the return of two to three million tons of swill-cooked dirty oil to dining tables every year in the country, seriously threatening the country’s food safety and public health. Ma’s commentary pointed out that a larger profit in biodiesel production will likely reduce the illicit production and use of waste oil for cooking.

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