(Bloomberg) -- A report by China’s state-run newspaper has singled out independent oil refiner Hengli Petrochemical Co. for allegedly skirting taxes in a move that could prompt more government scrutiny of the so-called teapot sector.

The private company allegedly passed off sales of fuels -- namely gasoline and diesel -- as more lightly-taxed petrochemical products, thus avoiding up to 13 billion yuan ($2 billion) in government levies, according to an article by China Energy News. The publisher is an industry journal managed by The People’s Daily.

The allegations could not be independently verified by Bloomberg News. Multiple attempts to seek comment from Hengli were not successful. Nobody answered calls to the General Administration of Taxation.

Such accusations present yet another blow to a sector that’s been working to clean up its reputation as a loosely-regulated part of China’s energy market. Some private refiners have been spotlighted in recent months for tax evasion, unlawful practices and violating environmental guidelines, prompting calls for them to be nationalized or shut down.

China’s teapot sector accounts for a quarter of the nation’s oil-processing capacity. The news sent jitters across the oil market as traders assessed the risk of selling crude to companies that might come under more scrutiny from Beijing. Hengli operates a 400,000 barrel-a-day refinery complex in Dalian.

More Allegations

The article in the July 26 print edition of China Energy News reported Hengli had allegedly taken advantage of loopholes in taxation rules, citing unidentified industry officials and researchers, as well as its own estimates.

The report was earlier published online on July 24 and shared via the newspaper’s official Wechat account, but later removed. An editor at the newspaper confirmed its removal but declined to provide an explanation for it.

Authorities have been clamping down on companies and individuals who evade consumption taxes on gasoline and diesel by blending petrochemical feedstock into road fuel. Separately, China introduced new levies on imports of products such as light-cycle oil, which is often added to diesel to make low-quality fuel and bulk up its volume.

According to the report, Hengli allegedly miscalculated its production of gasoline and diesel by accounting for some volumes as other chemicals. The refiner should have paid 15 billion yuan in fuel consumption taxes in 2020, but only paid 2 billion yuan due to such practices, the newspaper alleges.

China missed out on an estimated 200 billion yuan in yearly revenue due to such tax-evading activities, according to China Energy News.

Shares of Hengli traded at close to 29 yuan in Shanghai on July 26, having risen by more than 80% in the past 12 months. The company, which has its roots in making chemical fibers, forecast its net income to increase by about 54% for the first half of this year.

The report could prompt another wave of government checks and scrutiny into the activities of private refiners. In March, a report by the newspaper pointing to excess refining capacity in China likely triggered a nationwide inspection of teapots’ activities and operations.

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