China's incentives for automotive

The Ministry of Finance and the State Taxation Administration jointly issued on 31 May the Announcement about the “Reduction of the Vehicle Purchase Tax for Certain Passenger Cars” (Announcement [2022] no. 20).

Announcement 20 aims to promote the development of the automotive industry, one of the pillars of China’s economy, and support the domestic demand for motor vehicles through the halving of the vehicle purchase tax that is payable at the time of purchase of a passenger car.

The vehicle purchase tax is collected as a one-off tax levied on the purchase of vehicles, such as automobiles, trams, car trailers, and motorcycles with a cylinder capacity exceeding 1.5L, at the standard rate of 10%.

According to Announcement 20, the purchase of certain eligible passenger cars will be instead subject to half of the standard vehicle purchase tax. Eligible passenger cars refer to motor vehicles for the transport of nine or fewer persons with a cylinder capacity of 2L or less, purchased between 1 June and 31 December 2022, and with a price, excluding VAT, not exceeding RMB 300,000.

In addition, local authorities in Shanghai, to accelerate the recovery of local consumption after the two months of lockdown, will further promote the demand in the automotive industry by adding 40,000 passenger car license plates within the year and by providing a financial subsidy of RMB 10,000 to individual consumers scrapping their old vehicle with a new electric vehicle before 31 December 2022.

China is the world’s largest market for passenger cars, with increasing demand from the emerging middle class. The automotive industry expanded rapidly in the past years, and the high demand boosted the development of the industry and the investments in the production of new energy vehicles.