Government orders reduction in small car taxes

Shanghai, August 4 (Gasgoo.com) China's State Council on Saturday issued a statement ordering local governments to cut consumption taxes on small cars and raise tax on luxury vehicles with high emissions, in an effort to encourage energy conservation and environmental protection.

Again no details on the tax revision was revealed, but according to an internal plan obtained by West China City Daily, the tax rate on small cars with a displacement below 1.0-liter might be reduced to 1% from the original 3%.

Figures from China Association of Automobile Manufacturers say sales of small cars only accounted for 6% of the overall market, down 1.4% from one year earlier, and this number is expected to continue to dwindle this year.

"If the government offers substantial favorable policies for small cars, the situation will definitely change for the better," said Su Lianyuan, assistant general manager of the sales unit of Tianjin FAW Xiali Motor Co. He said the automaker is set to further improve fuel efficiency of its small cars in response to the policy.

The new policy is also likely to benefit some other local manufacturers of small cars, such as Geely Holding Group, Chery Automobile Co and Chongqing Changan Automobile Co., industry analysts said.

But Jia Xinguang, chief analyst with China National Automotive Industry Consulting & Developing Corp., a government think tank in Beijing, warned that local manufacturers need to invest more in the improvement of the safety or emissions-control features of their cars, otherwise they will not be able to compete with top quality models of foreign automakers, like Fiat 500, Toyota Fox or Benz Smart, to name just a few.