China broke a criminal ring that sought to smuggle almost a million barrels of fuel, although it has yet to be established whether the gangs involved tried to smuggle the fuel in or out of the country, Reuters has reported.

The large-scale operation resulted in catching 171 suspects from 14 gangs and seizing 11 ships with fuel worth some $770 million, according to the report.

The Chinese customs agency launched a nationwide crackdown on fuel smuggling last years. Since then, it said it had recorded as many as 170 cases of smuggling, with the amount of fuel involved worth a billion dollars by the end of February.

Fuel smuggling was one of the topics on the Chinese state oil giant's agenda when they called on the government to initiate reform in oil product taxation.

"Refined oil smuggling and market chaos still need to be rectified," said Huang He, general manager of a regional Sinopec division, as quoted by Argus last week. "China needs to establish a high-standard refined oil market system."

The country's largest refiner sent representatives to two political meetings in Beijing to discuss fuel taxes, where they urged the government to tackle illegal and tax-free fuel sales to develop "a fair competitive environment for the refined product market" featuring the "transfer, transportation, storage, and sales of refined oil that have not obtained retail business licenses."

Argus notes that taxes make up as much as 40 percent of the price of fuels in China. They include a consumption tax, a value-added tax, an urban construction tax, and an education surcharge.

Tax reforms in the oil refining sector have been on the table for years, but little progress has been made, especially because the consumption tax on fuels is collected by the central government, leaving local governments with just a tenth of taxes to collect. This has proved to provide little incentive to actually do the collecting, Argus reports.

By Charles Kennedy for Oilprice.com

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