CHINA / National

Car tax raised to 20% to spur fuel efficiency
Updated: 2006-03-22 10:44

China's government said it will adjust its tax rates on automobiles, motorcycles and rubber tires to encourage the use of vehicles with smaller engines that burn less fuel.

Beginning on April 1, the top tax rate for automobiles will be raised to 20 percent from 8 percent for vehicles with engine displacements larger than 2 liters, according to a statement posted on the Ministry of Finance's Web site.

The government of the world's third-largest vehicle market is trying to encourage consumers to choose cars with smaller engines to cut fuel consumption as rising incomes and falling car prices make cars affordable to more people.

Individual vehicle ownership more than doubled to 13.65 million units in 2004 from 6.25 million in 2000, according to the China Council for the Promotion of International Trade.

The move may hurt the assemblers of sports-utility vehicles and luxury sedans such as Ford Motor Co.'s Volvo unit, General Motors Corp.'s Cadillac sedans and Bayerische Motoren Werke AG's 3-Series and 5-Series cars. Volvo this week announced a plan to make the S40 luxury sedan in southwestern China's Chongqing city.

The proposed tax rule grouped cars into seven categories based on the engine size instead of the three categories under the current taxation law that has been in place since 1994.

1 Liter Cars

Under the new rules, cars with engines of between 1 liter and 1.5 liter will have their taxes cut to 3 percent from 5 percent. Cars with engines of smaller than 1 liter, such as the minicars made by Japan's Suzuki Motor Corp., will be maintained at 3 percent.

The government is also cutting taxes for small motorcycles with engines smaller than 0.25 liter to 3 percent from 10 percent. Taxes on rubber bias tires, used usually by trucks, will be cut to 3 percent from 10 percent, according to the finance ministry's statement.

Rising vehicle sales is increasing oil consumption in China, the world's largest oil consumer after the U.S.

Vehicles account for more than one third of China's use of oil, expected to rise to 43 percent in 2010, according to government forecast.

Currently more than 50 percent of cars in use are equipped with 1.6 to 2 liter engines while cars with engine displacements of 1.5 liter or less account for 30 percent of the total, the government said.