How Much Preferential Purchase Tax Policy Can Do to Boost the Auto Market?

Ministry of Finance announced on December 15th : passenger cars whose displacement is 1.6 liters or below will be levied the purchase tax by the rate of 7.5%. Issues about purchase tax which has been much concerned have finally been settled.

According to the policy, from January 1st to December 31st , 2017, passenger cars whose displacement is 1.6 liters or below will be levied the purchase tax by the rate of 7.5%. Since January 1st , 2018, the tax rate will be back to the statutory rate 10%.

In order to promote the growth of vehicle market, Chinese government adopted a preferential purchase tax policy to stimulate the auto market last year. Since October 31st, 2015, purchase tax of domestic models with displacement 1.6L or below has been halved to 5%, and the deadline of preferential policy is December 31st, 2016. The policy has made the sales of auto market grow rapidly from the fourth quarter of last year. According to China Association of Automobile Manufacturers, the auto market in November, influenced by the soon expire of the preferential policy, performed well as expected. Month-on month and year-on-year increase were both over 10%. The sales in November reached 293,870,000 vehicles, making a record high of monthly sales.

Cui Dongshu, Secretary General of National Passenger Car Association, had said in an interview, “purchase tax in the next year will be levied by the rate of 7.5%, which not only can achieve the minimum loss of tax revenue, but also can stabilize the growth rate of sales in the next year.”

However, insiders also expressed worry that it is not a permanent solution to rely on policies to maintain the growth of auto market. Besides, it is not conducive to profound reform and transformation in the auto industry. How much can the compromised preferential policy do to boost auto market next year? Analysts forecast that it may be difficult to have an optimistic result. Many insiders begin to worry about the auto market in the next year. China Merchants Securities (16.800, -0.11, -0.65%) forecasts: passenger car sales growth in 2017 will fall to single digit from two digits, saying 8.8%.