China may shift tax cuts from small car to 'green car'

Shanghai, April 22 (Gasgoo.com) The Chinese government may stop the sales tax cuts for small cars next year if the auto market remains strong, and will provide similar tax incentives for clean-energy vehicles, Reuters reported today, citing a state researcher.

China saw its auto sales grow 46% to 13.6 million vehicles last year, overtaking the U.S. to become the world's biggest auto market, thanks to a series of government incentives such as sales tax cuts for small cars and subsidies for rural purchases of clean vehicles.

This year's first-quarter auto sales rose 72% from a year earlier to 4.61 million vehicles, with passenger car sales up 76% to 3.52 million. China's vehicle sales may rise 17% this year to 16 million, and annual demand may eventually exceed 30 million.

If such strong sales growth continues, tax incentives that helped to fuel the boom may not be necessary anymore, Xu Changming, a research director of the State Information Center, said today during a presentation to the Beijing auto show.

The government may restore a 10% tax on vehicles with 1.6 liters or smaller engines, Xu said. China halved the small-car sales tax to 5% in January 2009, helping the auto market surge, and then raised the rate to 7.5% for this year.

As consumers may be reluctant to buy the government-urged clean-energy vehicles mainly because of the exorbitant prices, China is planning to offer similar tax incentives as well as subsidies to "green-car" buyers next year.