China: Purchase tax exemption for NEVs is extended
The Chinese government is extending the purchase tax exemption for New Energy Vehicles (BEVs, FCEVs and PHEVs) for another four years. It is currently the only incentive available for NEVs in China and was due to expire at the end of the year.
The Chinese Ministry of Finance officially confirmed the plan after it was leaked at the beginning of June. According to Deputy Finance Minister Xu Hongcai, the tax breaks will total 520 billion yuan, the equivalent of about 66.24 billion euros. The measure will stay in place until the end of 2030.
Specifically, New Energy Vehicles with a purchase date between 1 January 2024 and 31 December 2025 will be exempt from purchase tax, with the tax exemption capped at a maximum of 30,000 yuan (equivalent to around 3,800 euros) per passenger car. NEVs with a purchase date between 1 January 2026 and 31 December 2027 will be subject to vehicle purchase tax at half the standard rate, with the tax reduction not exceeding 15,000 yuan for each new NEV passenger car.
In addition, cars that allow for battery swapping will be eligible for additional support, provided the body and battery are purchased separately, CN EV Post reports. That was also the case before, which is why some companies had already issued separate invoices. However, from now on, financial support will only be available if the batteries are actually replaceable.
“This will aid China’s EV growth,” Susan Zou, vice president of market research firm Rystad Energy, told the Reuters news agency. She expected electric car sales to grow by 30 per cent in 2024, up from a previous estimate of 15 per cent.
Not all NEV models are automatically exempt from the purchase tax: The models concerned must be listed in the catalogue published and regularly updated by the Ministry of Industry and Information Technology (MIIT) and the State Administration of Taxation.
The catalogue was once introduced with the official justification that consumers could inform themselves about eligible vehicles. However, with this move, the authorities also reserve the right to exclude some cars from the tax regime. For models to be listed in the catalogue, manufacturers or importers can apply for the tax exemption, which will then be reviewed again by the MIIT and approved by the relevant tax authority in a final step.
In China, the standard purchase tax for vehicles is 10 per cent, which also applies to conventional cars with internal combustion engines. The tax exemption for NEVs has been in place since 2014 to encourage the uptake of energy-efficient vehicles. It was already extended three times, most recently in 2022.
Unlike the purchase tax exemption, China did not renew the more lucrative purchase premiums for this year. The government had reduced the bonuses over the years, which significantly impacted demand in some cases. Initially, the subsidy was supposed to expire at the end of 2020, but it was extended until the end of 2022 as part of the Chinese government’s Corona stimulus package – but not beyond.