State-controlled fuel prices have climbed a notch, but China's state-owned refiners face new challenges now that the government has decided to scrap rebates on imported crude oil taxes, effective July 1.

A source at China National Petroleum Corp. (CNPC) confirmed for Caijing that the government stopped refunding the 17 percent value-added tax on crude imports.

Less than two weeks earlier, the National Development and Reform Commission had lifted prices for refined oil products by around 17 percent. The June 19 move was aimed at easing the pressure on domestic refiners.

The tax rebates began in April, when the government started refunding state-owned refiners 75 percent of the taxes levied on imported crude. That measure was designed to help companies hurt by the widening gap between international crude prices and domestic prices set by government controllers.

However, analysts think canceling the tax rebates will create new challenges.

A Goldman Sachs report predicted that refining giant Sinopec and its subsidiary Shanghai Petrochemical will suffer losses in the third quarter due to the scrapping of rebates. The report said the tax rebate would have helped Sinopec earn 73.8 billion yuan in 2008. But canceling the tax breaks will cut that figure 62 percent, the report said.

Media reports said rebates added about 7.1 billion yuan to Sinopec's bottom line in April.

Statistics from the General Administration of Customs show that, during the first five months this year, China imported 950,000 tons of crude oil -- 40 percent less than in the same period last year.