Auto importers have been busy increasing their inventory in the expectation a higher consumption tax on gas-guzzling vehicles will boost their profits, industry sources said yesterday.

Industry insiders said as a proposed new consumption tax will significantly raise the rate on large-engine vehicles, dealers have begun looking to import more luxury cars so that they can make more money by selling the car at a higher price when the tax is imposed.

Dealers are required to pay the consumption tax when an imported vehicle arrives and then collect the amount back from clients when they sell the car. It is estimated that the tax rise, if realized, would increased the prices of targeted models by 10 to 20 percent.

This means a 3.2-liter Volvo S80 sedan, currently selling at 600,000 yuan (US$88,230) will see its price shoot up to 60,000 yuan, while the price of a 6.0-liter Mercedes-Benz S600 will increase by 500,000 yuan to 2.7 million yuan.

However, car makers estimate that the tax rise won't have a major impact on car sales because luxury car customers are not price sensitive.

"In a short period the purchase could be restricted, but we have a positive outlook in the long term," a BMW dealer said.

A dealer told Shanghai Daily yesterday that the proposed new consumption tax had already prompted auto buyers to move forward their purchase plans.

"We have been adding to our stockpile and holding onto the sales now so that we can ensure adequate supply and earn more profits later," said the dealer, who declined to be named.

The State Council agreed to increase the consumption tax on powerful vehicles at a meeting last week.

The move is aimed at saving energy and protecting the environment. No timetable on the introduction of the tax has been unveiled.

Under the plan, vehicles with engine replacement between 3.0-liter to 4.0-liter will be under a tax of 25 percent, up from the previous 15 percent. The rate for the cars powered by engines larger than 4.0-liter will also be lifted to 40 percent compared with 20 percent before.

Imports of passenger cars jumped 80 percent to 149,000 units for the first five months of this year, according to a report from State Information Center.

The jump has been helped by the quickened pace of yuan appreciation as well as the booming economy that has increased people's income.

(Shanghai Daily July 31, 2008)