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China Confirms End Of Small Car Tax Incentive

by Mary Swire, Tax-News.com, Hong Kong

30 December 2010


China’s Ministry of Finance and the State Administration of Taxation have confirmed that the existing preferential rates of purchase tax on small cars will end when they expire at the end of this year.

The purchase tax on cars with small engines of up to 1.6 litres was lowered from 10% to 5% early in 2009 to counteract the economic downturn and encourage a reduction in carbon emissions, and then increased to 7.5% for this year as the market recovered. It is now reported that the tax break will be cancelled as it is said to have fulfilled its function and is now unnecessary as the Chinese car market is stronger.

Consumers will return to paying the standard 10% purchase tax on such cars at the beginning of 2011, and this has caused some observers to predict a sharp fall in their sales growth from a reported 30% this year, to only some 10% next year.

There has, however, still been no news concerning China’s ‘cash for clunkers’ policy, whereby subsidies have been given to people trading their old vehicles for newer, more fuel-efficient ones. That measure, which includes subsidies of CNY3,000 (USD453) for small cars, is also due to expire at the end of this month.

TAGS: environment | tax | sales tax | tax incentives | China

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