Tax Cuts for Environmentally Friendly Cars

The State has recently decided to lower consumption tax for cars that meet stringent environmental requirements, but analysts said the move will not immediately push down the price for cars.

The State Economic and Trade Commission, along with the Ministry of Finance and the State Environmental Protection Administration, stipulated last week that the State will cut down consumption tax by 30 percent for cars, which meets the European II Environment Protection Criteria.

The commission said the move should encourage domestic auto producers to implement stricter environment protection technology on cars, to better protect the environment.

Currently, the central government charges 3 to 8 percent auto consumption tax and a 10 percent purchase tax on cars.

An spokesman from Guangzhou Honda Automobile said it is hard to say whether carmakers would pass the cost saved from the slashed consumption tax through to consumers.

"The impact of the policy on the domestic market would be indirect. The domestic companies would consider whether to put the money saved back to technology innovation, or just lower the price,'' the spokesman said.

Kenneth Hsu, vice-president of Ford Motor China, also agreed that it is not likely that the price would drop by a big margin, following the policy in the short term.

"But in the long run, the price would lower, as more producers strive to produce environmentally friendly cars, which would lower the market price as a whole,'' said Hsu.

Hsu said the policy is a continuation of the government's pledge earlier in March to encourage more people to buy cars.

The State hopes to see private consumers account for 70 percent of total auto sales within the next 10 years from the current 30 percent.

According to a commission official, it is unknown how many vehicles have met the tax-reduction criteria.

The official said the commission will launch stringent tests on car products to see whether manufacturers can enjoy the tax-reduction.

A report from Economic Daily, which is sponsored by the commission, said major domestic carmarkers, such as Shanghai Volkswagen, Shanghai General Motor and Dragon Citroen Automobile, have met most of the requirements.

It predicted that with the policy, domestic carmakers could save 200 million yuan (US$24.2 million) from the tax levy each year.

The paper said the commission would issue more policies concerning environmental protection.

"We will issue punitive taxes on carmakers who damage the environment,'' said the paper, citing an unnamed commission official.

(China Daily 08/24/2001)