Chinese Government To Consider Cutting Car Taxes

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

18 December 2008

The Chinese government is considering reducing the rate of vehicle purchase tax in a bid to encourage growth within its flagging auto industry.

The proposal was made by the National Association for Passenger Car Information Exchange, who took its concerns up with the country's Ministry of Finance, Ministry of Industry and Information, and the Ministry of Commerce.

The first idea under consideration is to replace the current 10% flat tax, with varying rates according to a vehicle's engine capacity. Those purchasing vehicles with an engine capacity of 1 litre and below would only be subject to a 2% levy, with the tax on car purchases with engines over 1 litre in capacity gradually increasing according to engine size. There would be no tax reduction for the purchase of cars with a 4 litre engine or above.

The second proposal under government consideration is to entirely exempt those vehicles with a 1 litre engine or below from any kind of purchase tax.

The news comes at a crucial time for Chinese motorists, who are set to experience changes to fuel and road taxes under a separate government initiative.

It is expected that a final decision on the matter will be made by the National Development and Reform Commission in the first half of 2009.

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