Car tax to go down ... and up

08:40, February 24, 2011      

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China is revising a draft to further lower the tax on small cars to encourage sales of fuel-efficient vehicles. It is also considering raising the tax for gas-guzzling cars at the same time.

Under current proposals, tax would vary depending on the engine size of a car with seating for up to nine passengers.

The revised proposals would tax cars with engines between 1.0 and 1.6 liters at 300 yuan (US$46) to 540 yuan, down from the 360 yuan to 660 yuan in the earlier version.

Tax on engines up to 2.0 liter would be reduced to a range of 360 to 660 yuan, compared to the previously suggested 660 to 960 yuan.

Cars from 2.0 to 4.0 liters would be charged 660 to 3,600 yuan while bigger cars would face paying up to 5,400 yuan.

Small cars below 1.0 liters could pay as little as 60 yuan.

Currently, vehicles pay a tax ranging from 360 to 660 yuan a year.

But industry analysts say the changes would not immediately boost sales of small cars as the tax is relatively small compared to the cost of a car. And the higher tax on bigger cars would have a limited effect as purchases of those vehicles were not cost sensitive.

"The revised proposals will mainly have a guiding impact and demonstrate the government's determination to promote fuel efficient small vehicles," said Zhong Shi, an independent analyst.

Zhang Bolin, an official from the National People's Congress, China's top legislature, said the tax adjustment would benefit the majority of car owners.

Sales of passenger cars with engines of 2.0 liters or less accounted for 87 percent of the total, he said.

China's auto sales surged 32 percent last year to more than 18 million units, overtaking the United States to make the country the largest auto market in the world.

Promoting energy-saving small cars and green energy vehicles is the main focus of China's auto industry as the rapidly growing number of vehicles places a higher burden on the country's energy security and the environment.

Last year, China halved the purchase tax on cars with engines below 1.6 liters, and is investing 100 billion yuan in the development of fuel-efficient cars and new energy vehicles over the next 10 years.

Source: Shanghai Daily
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