Clear The Air News Blog Rotating Header Image

Heavy Taxes On Cars With Large Engines

Finance ministry unveils heavy taxes on cars with large engines

Kandy Wong – SCMP – Updated on Aug 14, 2008

The Ministry of Finance in a surprise move yesterday said it was sharply increasing consumption taxes on larger vehicles in a bid to fight pollution.

However, many observers said only a fuel consumption tax could encourage the purchase of low-emission cars and some analysts thought the new policy was at least partly aimed foreign carmakers whose larger vehicles are selling briskly.

According to a statement on the ministry’s website, vehicles with 4.1-litre or more engines will be taxed at a rate of 40 per cent of the retail price, up from 20 per cent. Vehicles with 3 to 4-litre engines will be taxed at 25 per cent, up from 15 per cent. Meanwhile, the tax on small cars with 1-litre engines or smaller will be lowered to 1 per cent from 3 per cent.

The ministry said that “a higher consumption tax can reduce the reliance on oil and ensure the development of lower-emission vehicles”.

The new tax – an unexpected policy move during the Olympics – will be effective from September 1. It is the second time the consumption tax on vehicles has been adjusted since early 2006.

The policy came about after a State Council meeting, chaired by Premier Wen Jiabao last month. The council confirmed it “encouraged fuel-efficient vehicles and the implementation of higher consumption taxes for large-engined vehicles”.

“The adjustment of the consumption tax this time will not impact the automobile industry heavily,” said analyst Li Chunbo at Citic Securities.

Most vehicles sold on the mainland have engines of 1.8 to 2.5 litres, for which the tax policy remains the same.

Analysts said that only a fuel tax could lead to purchases of more fuel-efficient vehicles. However, the central government, which has discussed a fuel tax seven times in the past decade, currently has no plans to resurrect the issue.

Matthew Kong at Fitch Ratings said: “The central government is eager to implement the new consumption tax again because imported large-engined cars recorded high sales growth in the first half and the government wants to stop the trend of buying large-engined vehicles.”

According to figures from the China Association of Automobile Manufacturers, sales of imported vehicles grew 25.81 per cent to 80,700 units in the first six months. Among the total sales of imported vehicles, 3-litre engine cars posted the highest growth at 54.41 per cent from last year, to 32,300 units.

Leave a Reply

Your email address will not be published. Required fields are marked *