Geely's Li Shufu proposes collection of vehicle purchase tax shared by central & local governments

Shanghai (Gasgoo)- Li Shufu, chairman of Zhejiang Geely Holding Group (Geely Holding), proposed that the vehicle purchase tax, which is currently collected by the state tax department alone, should be jointly levied and administered by both the central and local governments.

Mr. Li offered the proposal as a deputy to the 13th National People's Congress before this year’s two sessions, China’s most important annual political event, which will kick off in late May.

(Photo source: Geely Holding's WeChat account)

As one of pillar industries to China's domestic economy, the automobile business significantly drives the development of both upstream and downstream industries, he said. In 2019, China output and sold 25.721 million and 25.769 million vehicles respectively, and saw the annual gross product of automobile industry exceed 8 trillion yuan (around $1.128 trillion), which equaled to 8% of GDP.

However, China still possesses a great growth potential in automobile consumption as its per capita vehicle number still remains a relatively low level compared to developed countries.

To boost automobile shopping, China's central government has put forward a number of incentives and repeatedly highlighted the relaxation of the clampdown on new car registrations, but the responses from local governments are quite different. Li said local authorities not only gain meager proceeds from automobile businesses, but also will undertake heavier pressure on transportation and environment management once the vehicle purchase restriction is relaxed.

Li Shufu pointed out that the current tax mechanism substantially curbs local governments’ initiatives in boosting automobile consumption. Among the major taxes related to automobile sector, the vehicle purchase tax and consumption tax are charged by the central government, and the corporate income tax and VAT are administered by central and local governments together. The vehicle and vessel tax is solely controlled by local tax departments, but only takes very little portion. Apart from the insignificant revenue, they have to assume a sizeable investment cost in building infrastructures like road, park lots and EV charging piles, and in handing the severe traffic congestion after car population explodes.

Invigorating consumption is very essential to the high-quality development of China’s automobile industry. To make vehicle purchase tax play a better role in increasing fiscal revenue and regulating economical activities, the tax collection system should be adapted to suit the current reality and future trend.

Thus, Li suggested that the responsibilities of collecting and managing vehicle purchase tax are 50/50 shared by both central and local governments. China's automobile outputs and sales are projected to be increased by 10 million units over the next decade to nearly 35 million units, said Li, citing a forecast offered by “relevant agencies”. If vehicles' unit prices still remain unchanged then, the revenue from vehicle purchase tax is likely to reach nearly 500 billion yuan ($70.289 billion), which would bring tax revenue worth 250 billion yuan ($35.144 billion) to local governments.

The additional tax income would largely alleviate local authorities’ burdens in improving people's wellbeing, paying wages and ensuring normal operation of governmental functions. Moreover, it will arouse their initiatives in creating sound environment for automobile consumption, strengthening the infrastructure construction, and solving such problems as traffic jam and shortage of parking lots. 

Furthermore, Li Shufu also advised local governments to plow part of tax revenues—if the abovementioned proposal was adopted—into the R&D of new automobile technologies, as he thought that enlarging the investments in new technology areas like NEV, autonomous driving and ICV will drive the industry's higher-quality growth.

Li added he will be happy to see a portion of the tax revenue used to subsidize consumers' vehicle shopping, in a bid to further unleash the potential of domestic demand.