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China to raise consumption tax on big cars

By Shangguan Zhoudong (chinadaily.com.cn)
Updated: 2008-08-13 17:42

Vehicles drive along a busy road in Shanghai on May 7, 2008. [Asianewsphoto]

China will adjust consumption tax on vehicles as of September 1 this year to curb high-emission cars and promote small ones, according to a circular jointly issued by the Ministry of Finance and the State Administration of Taxation today.

The country will raise the consumption tax on passenger vehicles with large engines and cut the consumption tax on low-emission passenger vehicles, in an effort to reduce pollution and save energy.

According to the circular, the tax on big cars with an engine size of over 4 liters will rise to 40 percent from 20 percent.

For those cars with engine displacement of between 3 liters and 4 liters (4 liters included), the tax will increase to 25 percent from current 15 percent.

While the consumption tax rate on passenger vehicles with an engine size of 1 liter or lower will fall to 1 percent from current 3 percent.

The State Council, China's cabinet, agreed on July 23 this year in principle to raise the consumption tax on cars with large engines to help save energy.

The cabinet said that energy-efficient automobiles would be given preferential tax treatment, and it would look to make sure that polluting old automobiles are taken off the streets and that public transportation will be ramped up.

China Automobile Trading Co Ltd figures show from January to May, 26,992 large cars were imported, accounting for 41.38 percent of total car imports. Sport utility vehicles (SUV) imports in the first five months surged 91.3 percent over same period last year.

According to an insider, the tax rise would have the biggest impact on auto producers from the European Union and Japan as luxury cars mainly came from those two regions.

As the auto boom drives China into the modern era, it also worsens air pollution, traffic jams and the energy crunch. According to a report issued by the World Bank, air pollution is costing China 3.8 percent of its gross domestic product.

Estimates show that in Beijing's air pollution, 74 percent of hydrocarbons, 63 percent of nitrous oxide, and 50 percent of nitrogen oxides comes from motor vehicles.

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