Kandy Wong, SCMP – Updated on Jan 07, 2009
The central government will soon announce the rate cut for consumption tax, which is regarded as a move to further boost sales and entice consumers to buy “green” cars in a weak market.
Beijing aims to transform the industry, with zero emissions as the goal in the next decade, using tax policies. It regards the current financial crisis as the right time to encourage fuel-efficient vehicles.
“China needs to take policy steps to help counter a serious drop-off in car sales as a result of the global economic slowdown,” Minister of Industry and Information Technology Li Yizhong has said.
The vehicle industry is lobbying government departments for a favourable consumption tax rate. Mainlanders currently pay a consumption tax of 10 per cent when they buy a vehicle. Analysts said if the tax cut was less than 5 percentage points, there would not be a strong enough effect to boost sales of small-engined vehicles.
Under one set of proposals, the tax for vehicles with one-litre engines or smaller would be lowered to 2 per cent from 10 per cent. Vehicles with 2-litre to 2.5-litre engines and 2.6-litre to 3-litre engines, which are among the most widely bought cars, would be taxed at 7 per cent and 8 per cent, respectively.
Another proposal is to eliminate the consumption tax on cars with 1.6-litre engines or smaller. But it remains unclear how aggressive the government will be in the tax cuts.
The Ministry of Finance has already doubled the vehicle consumption tax in August on large-engined cars of 4.1 litres to 40 per cent from 20 per cent in a bid to fight pollution.
Before the government implements changes to the vehicle consumption tax, the country’s fuel consumption tax has been increased effective January 1, which is seen as a move to prompt the development of fuel-efficient vehicles.
The National Development and Reform Commission announced last month that the tax for petrol would be raised from 20 fen (23 HK cents) per litre to 1 yuan and the diesel tax from 10 fen to 80 fen per litre.
Road maintenance fees levied on motorists will also be cancelled, as a way to offset the higher fuel consumption tax.
The increase in fuel consumption tax has been discussed for a decade and was turned down seven times in the past.
Motorists have said they would drive less and use more public transport because of the higher fuel consumption tax.