Experts Suggest Consumption Tax on New Energy Vehicles
Experts have proposed that China should implement a consumption tax on new energy vehicles (NEVs) and allocate the generated revenue to local governments.
The Chinese publication International Taxation proposed on July 15 that China should expand its consumption tax to cover all new energy vehicles (NEVs). The proposal, featured in a journal overseen by China's State Taxation Administration, suggests allocating the resulting tax revenue to local governments.
The article recommends including NEVs within the "small passenger car" tax category, which currently offers exemptions for these vehicles. This exemption has primarily been in place to foster the industry's growth. However, with NEV sales projected to reach 50.8% of the total domestic auto market by 2025, continuing the exemption is seen as counter to tax neutrality and fairness principles.
As the NEV sector matures and achieves economies of scale, its product competitiveness has strengthened, and market penetration has significantly increased. The authors argue that maintaining the tax exemption is no longer aligned with the industry's development stage and hinders the creation of an appropriate fiscal incentive and governance framework.
The proposal aims to create a more equitable tax system and rebalance local government incentives, potentially curbing redundant construction and disorderly competition. By linking local fiscal revenue to NEV consumption, the plan seeks to promote a shift from scale expansion to high-quality, efficient development within the industry. Additionally, the recommendations include harmonizing tax systems for fuel and electric vehicles and exploring vehicle ownership-based taxes, such as those based on mileage or electricity consumption.