Manufacturing News

Beijing confirms plans to raise tax on small cars in 2017

China's government confirmed media reports that it will raise the purchase tax on small vehicles next month, with the increase to be phased in over the next year.

Vehicles with engines up to 1.6 liters carry a 5 percent purchase tax. That will increase to 7.5 percent next year and 10 percent in 2018, according to an announcement by the Ministry of Finance.

In October 2015, Beijing halved the 10 purchase tax in a bid to revive stagnant auto sales. The tax cut worked, and sales boomed.

In the first 11 months of 2016, light-vehicle deliveries rose nearly 16 percent year on year to 21.7 million. Demand for small cars was even stronger. Sales of vehicles with engine displacements of 1.6 liters and smaller jumped nearly 23 percent to 15.6 million vehicles.

The incentive was to expire on Dec. 31, and the China Association of Automobile Manufacturers requested an extension to stave off a sales downturn.

So the finance ministry compromised. The tax will be restored -- but in two phases, to ease the pain.

With a purchase tax of 7.5 percent next year, small-car buyers will save 2,000 to 3,000 yuan ($290 to $430) compared with the eventual 10 percent levy.

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