China's Ministry of Finance announced it will have the purchase tax for small-engine cars to boost auto sales starting from June 1, 2022.
During the first month of the tax-cutting policy's implementation, low-emission passenger vehicle users saved about CNY 7.1 billion (USD 1.06 billion), and nearly 1.09 million cars enjoyed China's car purchase reduction.
The government will cut the tax for cars priced at no more than CNY 3,00,000 (USD 45,000) with 2.0-liter or smaller engines, which will last from June 1 to the end of the year.
The Chinese government has already scrapped the 10 per cent vehicle purchase tax on a number of NEVs before, including popular models like Tesla's Model 3s. It broadened the scope of cars applicable for the tax exemption to all NEVs this time.
"The policy will benefit more than 10 million vehicles and promote more than 1.5 million car sales," said Liu Bin, an expert from China Automotive Technology and Research Center.
The tax-cutting policy demonstrates the government's latest efforts to lift New Electric Vehicle (NEV) consumption in China, especially during the pandemic. In addition, Chinese authorities considered prolonging subsidies for EV purchases by as much as CNY 25,000 (USD 3,500) per vehicle. The government is also implementing relaxing emission standards to provide relief for combustion carmakers, according to people familiar with the matter.
The vehicle consumption driven by automotive industries and subsidies will bring more significant benefits to manufacturers, downstream insurance, and financial service providers.