Gasgoo Munich- A study published in the July 2026 issue of International Taxation argues that the window is closing on tax exemptions for new energy vehicles (NEVs), now that their domestic market penetration has topped 50%. Jointly authored by scholars at Peking University's School of Economics and the China Automotive Technology and Research Center, the paper recommends bringing battery electric and plug-in hybrid vehicles fully under the "small car" tax category. This would align their tax burden with that of internal combustion engine vehicles.
Source: International Taxation
The analysis suggests China's current fiscal framework is heavily skewed toward production. Local governments reap substantial tax and output rewards from attracting vehicle manufacturing projects, while revenue from consumption remains relatively limited. This structure inherently incentivizes regional competition for capacity expansion, often leading to redundant construction and a glut of homogenized production.
To address this, the study proposes allocating all new consumption tax revenue from NEVs entirely to local governments, thereby boosting their fiscal autonomy. Crucially, it advocates abandoning the traditional "place of production" principle in favor of a "place of consumption" model—meaning tax revenue would flow to the jurisdiction where the vehicle is ultimately registered and used.
Based on 2024 data and a 5% tax rate, the study estimates this could generate roughly 117.3 billion yuan in revenue. Such a move is seen as a way to alleviate fiscal pressure on local governments, while shifting the focus of regional competition from simply expanding production to improving the consumption environment and public services.
The study outlines two potential implementation paths. The first would maintain taxation at the production stage but establish a cross-regional fiscal settlement mechanism to distribute revenue between production and consumption areas. The second would shift the collection point to the retail end, allowing the consumption location to collect the tax directly. The authors caution that reforms must monitor the impact of tax shifting on short-term demand. They also call for a unified national data platform to verify tax sources, preventing regional competition from devolving into a "race for sales" rather than a "race for capacity."
Furthermore, the article recommends optimizing the tax regime for vehicle ownership. It suggests exploring fees based on mileage or electricity consumption to more equitably distribute the public service costs associated with NEV usage.
