China Will End Preferential Taxes on Small Displacement Cars

In order to reduce pollution in large congested cities and to decrease dependence on oil imports, the Chinese government introduced major tax incentives for first-time buyers of cars with small displacements last year. However, there is a high risk that this might make the large Asian country’s economy overheat, so the government is set to cancel the preferential taxes on small displacement cars.

According to an xxcb.cn report issued today, citing a representative from the Industrial Coordination Division of the National Development and Reform Commission(NDRC), the policy will end this year.As stated in the first form of NDRC policies and regulations that started in March 2009, taxes on small-displacement cars of 1.6l or below were set to just 5 percent. This year however, they were changed to 7.5 percent in order to slow down the bubbling market.

Come next year, taxes will return to normal, meaning that consumers can expect to pay CNY2,317 ($348) more if buying a CNY100,000 ($15,000) car with a 1.6l engine (or lower displacement)

"With this year's taxes being lowered, there has not been a massive effect on small car sales. The taxes were originally lowered as a way to combat the global financial crisis, while now the Chinese auto market is growing much stronger and shows that the mission has been accomplished," Secretary of the China Association of Automobile Manufacturers (CAAM) Mr. Zhang Boshun was quoted as saying by China Car Times.

The Chinese government's "cash for clunkers" program, that provided buyers subsidies for replacing their old polluting vehicles with new ones, will also end on December 31, 2010.