The purchase of electric cars and plug-in hybrids, the so-called New Energy Vehicles, will remain exempt from VAT in China until the end of 2020. This has now been confirmed by the Ministry of Finance and the State Tax Administration in a joint statement.
New energy vehicles (NEVs) purchased from 1 January 2018 to 31 December 2020 shall be exempt from vehicle purchase tax, and shall come into effect from July 1, 2019. Until now, the exemption has helped boost the sales of low-emissions vehicles.
Amid sharp cuts in subsidies for electric cars in China, there was some speculation that the VAT exemption would fall under the axe of the government. However, despite other far-reaching changes and administrative developments, the VAT exemption will survive while VAT on fossil-fuelled cars, trailers, motorcycles (over 150 cubic centimetres cubic capacity) will continue at ten per cent. In the first four months of this year alone, 360,000 NEV were sold in China, an increase of almost 60 per cent over 2018.
Earlier this year, the Chinese government announced that it will be cutting its subsidies for electric cars before they are to be completely abolished by 2020. Also, in an effort to focus the electric car startup environment in China, the government tightened regulations for startups. Also this year, the limit on the number of registration plates available to electric cars has been removed (of course these remain for polluting vehicles). Just last week, the Beijing city government announced that manufacturers of all-electric vehicles could no longer receive subsidies from China’s municipal governments.