UPDATE 3-China to give crude tax rebate to help refiners

(Adds potential oil demand impact, quote)

By Chen Aizhu and Shen Yan

BEIJING, April 7 (Reuters) - China has agreed to grant a hefty tax rebate on crude imports to help its oil firms limit heavy refining losses, while avoiding fuel price increases that would stoke inflation, a government source said on Monday.

Under the scheme -- proposed by oil firms and endorsed by the State Council, or cabinet last month -- Beijing is set to cut the 17 percent value-added tax on crude imports by three-quarters, said the official source who is familiar with the policy.

Some analysts say the tax plan may take effect as early as this month as Beijing seeks to end recurrent fuel shortages caused by refiners curbing production in the face of unprofitable state-set fuel prices.

The rebate encourages plants to boost output by staunching losses, while sidestepping a rise in state-set pump prices that would be risky and unpopular with inflation at an 11-year high.

But by restoring margins enough to bolster fuel supplies, without giving drivers in the world's number two oil consumer any incentive to cut back, the move may allow a surge in pent-up demand that could undermine energy security.

"If this move is implemented, it seems guaranteed to raise global demand for crude oil, and intensify upward pressure on worldwide prices, while doing nothing to promote energy efficiency and fuel conservation within China," said one London-based analyst who declined to be named.

The rebate is equivalent to a rise of about 820 yuan ($117) a tonne in refined fuel prices, according to calculations by Liu Bo, a Shanghai-based oil analyst for Guojin Securities, who said he had also heard of the proposal from his government contacts.