China Extends NEV Purchase Tax Exemption Policy to Support Sector’s Growth

Visual China

BEIJING, June 5 (TiPost) – An executive meeting of the State Council of China last Friday announced the continuation and optimization of the new energy vehicle purchase tax waiver and reduction policy, delivering a positive message to the industry.

The meeting also called for the construction of high-quality charging infrastructure system, with the hope of further stabilizing market expectations, optimizing the consumption environment, and stimulating more demand for new energy vehicles.

The vehicle purchase tax is levied on both traditional fuel vehicles and new energy vehicles, whose rate is 10% of the taxable vehicle price. In order to encourage the development of new energy vehicle sector, the Chinese government exempted the purchase tax of new energy vehicles in September 2014.

While new energy vehicles have accounted for an increasing proportion of new car sales in recent years,  fiscal subsidies for them have exited. In 2017, subsidies from both the central government and local governments were reduced. In July 2019, local government subsidies were terminated and at the end of 2022, subsidies from the central government ended. That makes the NEV tax exemption policy more important.

According to the China Automotive Strategy and Policy Research Center (CASPRC), the average tax exemption per new energy vehicle reached 15,200 yuan in 2022, exceeding the amount of fiscal subsidies. The whole industry is following closely how long the preferential policy will continue and how to reshape the tax system around new energy vehicles.

It’s a consensus among industry insiders that the new energy vehicle purchase tax incentives should continue. At the China EV 100 Forum on April 1, Stefan Mechanic, the CEO of Volkswagen’s passenger car brand in China, appealed to extend the purchase tax exemption policy for new energy vehicles and build a stable policy framework. Wang Chuanfu, the chairman of BYD Co. Ltd. (002594.SZ), suggested extending the preferential measures through 2025. Miao Wei, former Minister of Industry and Information Technology, proposed that the authorities should make a mid-term or long-term policy rather than review it annually.

The State Council announcement on the continuation of the purchase tax exemption policy of new energy vehicles delivered a positive signal. However, no relevant policy details have been released by the authorities. The CASPRC argued that the policy needed to be clear about how long the purchase tax waiver and reduction be effective, what tax reduction percentages are and whether to attach conditions to the application of the policy.

Opinions vary among the industry about how to “optimize” policies. A source close to the policy-making department believes that the purchase tax exemption for new energy vehicles may continue for some time, and then transition to a 5 percentage tax reduction, and eventually revert to a 10% tax rate. There may also be threshold conditions for vehicles enjoying the purchase tax exemption policy.

An anonymous senior industry expert said that it was ideal to extend the tax exemption policy for new energy vehicles through 2025, and it could be further prolonged if the financial situation permits.

Another source close to the policy-making department thinks that the new energy vehicle purchase tax exemption policy is impossible to stay for a long time, and the industry should brace for the changes.

According to the CASPRC, authorities should plan in advance and redesign the car tax system around new energy vehicles.

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