Green Tax on Big Cars in China

By Zuo Maohong
Published: 2008-08-13

Buying big cars in China will cost more after September 1 when the government will up the vehicle excise tax by up to 40% to discourage fuel consumption and carbon dioxide emmission.

The tax raise was announced on Wednesday by China's Ministry of Finance (MOF) and State Administration of Taxation (SAOT) via a notice posted on their websites.

Under the new ruling, for cars with a capacity between three and four liters, the tax rate will be raised to 25% from the current 15%. As for cars above four liters, the rate will be 40% instead of 20%.

Meanwhile, cars with an engine capacity below one liter will enjoy a tax cut from 3% to 1%. Taxes on other cars remained unchanged, 3% for those with 1 to 1.5 liters capacity, 5% for 1.5 to 2 liters, 9% for 2 to 2.5 liters and 12% for 2.5 to 3 liters.

The new policy would come into effect on September 1, the notice said.

Gas emmission from cars has been a major contributor to China's infamous air quality.

Thanks to rapid economic growth that led to an expanded middle class, private car ownership in China had been rising 20% yearly on average, based on estimation by the Ministry of Housing and Urban-Rural Development (MOHURD). State media Xinhua also once reported that China's private car ownership had climbed from 15.8% to 58.5% between 1990 and 2005.

In 2006, China put forward the slogan "save energy and reduce emissions" in its 11th five-year-plan (2006-2010).  Since then, the Chinese government has deployed various measures, from introducing stricter environmental-friendly regulations to flexing taxation muscle.

In the past several years, many highly-polluting factories have been shut down, companies directed to adopt more energy-saving technologies, and public buildings required to adopt energy saving practices, such as keeping the air conditioning temperatures at 26 degree centrigrade and above.

In the run-up to the Olympic Games, host city Beijing had resorted to a series of temporary measures to fight pollution. Between July 20 and September 20, construction projects were halted and traffic restrictions adopted—cars with odd-numbered license plates would go on the road on odd dates and vice versa for cars with even-numbered license plates.

While Beijing aimed for a "green" Olympics, international criticism for its poor air quality continued. Foreign media harped on Beijing's smog over the past week, saying those temporary policies were not as effective as the Chinese government had claimed.

The same may be true with the latest effort to spur fuel efficiency and curb pollution, as there was little choice in low-cylinder capacity cars in the Chinese market at present.

One Chinese potential car buyer who has been surveying the market said the average car buyer usually opted for medium price-range cars with a capacity below two liters, costing between 100,000 and 200,000 yuan each.

He added car models below one liter capacity were few - including brands like QQ, Spark, and Sherry that cost between 20,000 and 50,000 yuan each.  Thus, he believed the new policy would have little impact on the majority of the car buyers, as taxes on the models within their reach basically remained unchanged.

The law would likely only affect the neauvou-riche, whose choice of cars also represented their status.