China to end tax exemptions for plug-in hybrids from 2027

As reported by CnEVPost, China’s Ministry of Finance, the State Taxation Administration, and the Ministry of Industry and Information Technology have decided to adjust the national vehicle and vessel tax. The changes will affect plug-in hybrids, including range-extender models, as well as battery-electric commercial vehicles and fuel cell commercial vehicles. The tax exemption for these vehicle categories, in place since 2012, will end on 1 January 2027. At the same time, the existing tax reduction for particularly efficient internal combustion engine vehicles will also be abolished.

Battery-electric and fuel cell passenger vehicles remain unaffected. As these vehicle types do not have an engine displacement, they continue to be exempt from the annual vehicle tax under Chinese tax law. This means the largest segment of China’s new energy vehicle (NEV) market will remain tax-free. The vehicle and vessel tax is an annual ownership tax in China. For passenger cars with an engine displacement of between 1.6 and 2.0 litres, the tax ranges from 360 to 660 yuan (~€43 to ~€79 euros) per year, depending on the province. From 2027, owners of the newly affected vehicle categories will be required to pay the tax, regardless of whether their vehicle is new or previously registered.

The Chinese Ministry of Finance justifies the decision by stating that the tax incentives have fulfilled their purpose. The regulation, which has been in effect since 2012, has significantly contributed to the market growth of electric and other energy-efficient vehicles. However, given the now substantial market presence of these vehicles, the framework conditions have fundamentally changed. Additionally, plug-in hybrids and other electrified vehicles are now considered high-value economic assets, and their taxation is expected to promote greater tax fairness.

This decision aligns with the gradual realignment of China’s subsidy policy for electric vehicles. After years of state incentives supporting the sector, the government is increasingly withdrawing from direct funding. Recently, the share of so-called NEVs in China’s passenger car market reached a new record high of 62.9 per cent. BloombergNEF also expects continued growth in China’s electric vehicle market but anticipates that the pace will slow compared to previous years as the market enters a phase of maturity. Against this backdrop, the government appears to be shifting its focus from purchase incentives towards normalising the tax framework.

cnevpost.com, szs.mof.gov.cn (in Chinese)