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Draft law: Tax on auto dealer surcharges

China Daily, August 22, 2011

• Early this month, the State Administration of Taxation formulated a draft revision of the national auto sales tax implemented in 2007.The new regulation in circulation for public opinion would require customers to pay tax on extra fees as well as the purchase price.

  As China's auto market boomed over the last two years, cars in high demand - especially imported luxury vehicles - often carried a hefty extra fee from dealers for getting the goods as soon as possible.

  Dealers directly charge extra thousands, even tens of thousands of yuan, or force customers to buy more options at exorbitant prices if they want to cut the waiting time.

  The practice is controversial - and car buyers might have to soon even pay taxes on the surcharges.

  Early this month, the State Administration of Taxation formulated a draft revision of the national auto sales tax implemented in 2007.

  The new regulation in circulation for public opinion would require customers to pay tax on extra fees as well as the purchase price.

  Fees subject to tax include payments for extra equipment, accessories, customization and other surcharges from dealers, according to the draft.

  "It is still controversial whether it is illegal for dealers to charge additional fees," according to a notice posted on the administration's official website.

  "To levy taxes on the extra payments doesn't mean the administration supports or opposes the behavior," it said, noting the purpose of the revised regulation to battle tax avoidance by auto dealers.

  The new draft has lead to heated discussion in the market. Supporters say the additional charge is part of the market economy and higher taxes could help regulate irrational consumption by the wealthy.

  Yet more voices seem to disagree, alleging such extra fees charged by dealers are illegal and the new regulation would legitimize the practice.

  It will certainly increase the burden on customers, they say.

  Jiang Suhua, an attorney at the Yingke Law Firm and a member of the legal team at the Chinese Consumer Association, said such dealer surcharges "infringe on the price law, contract law and also violate the law governing unfair competition".

  Car buyers have sued dealers in Beijing for charging more than the sticker price and the courts ruled dealers should return the overcharge, Jiang said, calling on other customers to take the initiative to report such dealer behavior.

  But some analysts say the reasons for dealers to add on charges are complex.

  They note the country's regulation on auto sales implemented in 2007 allows foreign carmakers to authorize exclusive distributors in China, in effect giving them an import monopoly.

  But in some cases, auto companies force dealers to buy unpopular models along with hot-selling cars, so dealers need a bigger profit on high-demand products to cover the loss, independent automotive analyst Jia Xinguang said.

  When a particular model is indeed in short supply and customers want a priority in delivery, then it should be clearly priced how much the expedited delivery costs, Jia said.

  But he cautioned that any dealer effort to create an artificial shortage through holding back cars is clearly illegal and should be punished.

  He noted that regulators should not only consider tax issues, but also illegal activities.

  "Consumer interests should be the top priority,"he said.

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