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Electric Car Industry in China Gets Tax Relief and Incentives

Posted by: Zhorea Garcia
Category: Economy & Trade, Tax and Regulations
Electric Car Industry in China Gets Tax Relief and Incentives

On April 22, 2020, China’s Ministry of Industry and Information Technology announced new policies concerning the electric car industry in the country. The new policy aims to further develop the new energy vehicle industry including the consumption of electric cars.

Read our previous post about Electric Cars in China: Investing in the Country’s “Electrification

China moved to reduce the taxable purchase of vehicles to promote automobile consumption. Thus, it shows the government’s efforts to recover from the impact of the COVID-19 crisis on the industry. Keep reading.

Tax exemption on electric vehicles

Electric vehicles fall into the category of the new energy vehicle industry. Along with plug-in hybrid vehicles and fuel cell vehicles, pure electric vehicles will be exempted from purchase taxes from January 1, 2021, to December 31, 2022.

According to Announcement No. 21, MIIT has issued the catalogue of new energy vehicle models to manage the vehicle purchase tax exemption. The catalogue lists the type of new energy vehicles eligible for the purchase tax exemption. Meanwhile, the previous catalogue on new energy vehicles will remain effective until the end of the year 2020.

VAT reduction on second-hand cars

China’s MIIT also targeted second-hand vehicles or cars as part of its plan to push for automobile consumption. The ministry saw its market potential in terms of meeting the consumption demands of different cities. But in order to further attract consumers on buying second-hand vehicles, the authorities decided to levy VAT on the sales of used cars by 0.5 percent, instead of the previously reduced rate of 2 percent. The original collection rate was 3 percent. This policy support will take effect starting from May 1, 2020, to December 31, 2023.

Second-hand cars refer to used cars which are sold or relocated to other places. Last year, China has transferred a total of 3.07 million second-hand vehicles to other places, accounting for 29 percent of the total sales for used cars.

On the other hand, China also exported hundreds of used cars to Africa in a bid to eliminate high emissions. Many car dealers have begun exporting used cars to more countries including Cambodia, Myanmar, Nigeria, and Russia.

Extended subsidies for electric vehicles

Since 2019, the new energy vehicle market has plunged by 4 percent, amounting to 1.21 million sales. During the coronavirus outbreak, the total sales volume amounted to only about 12,000 in February, down 62.3 percent year over year. There was only a total sale of 9,869 pure electric vehicles, and 1,664 plug-in hybrid vehicles.

Hence, to bolster the electric car demand amid the COVID-19 effect, the Chinese government decided to extend electric vehicle incentives by two years. The State Council pledged to provide price subsidies to manufacturers of new-energy vehicles (NEVs). According to the report, NEV makers can get a total subsidy worth as much as RMB25,000 per vehicle. Besides, car buyers are also exempted from the 10 percent purchase tax charged on gasoline cars.

The central government will also provide incentives to eliminate diesel trucks with China III Emission Standards and below. This will apply in key areas such as Beijing, Tianjin, and Hebei region.

New developments on the electric car market

On February 27, 2020, giant car manufacturer Toyota announced an expansion of its new energy vehicle production capacity by building a new car plant. Toyota will increase its annual capacity to 200,00 EV units annually, worth RMB8.7 billion of investments. The Japanese car manufacturer Toyota will construct the EV plant in Tianjin with FAW, a state-owned automotive manufacturing company in China.

Toyota is committed to achieving its sales target of 5.5 million electric car units by 2025. Moreover, it currently has a broad range of new energy vehicles such as hybrid electric vehicles (HEV), plug-in electric vehicles (PEV), plug-in hybrid electric vehicles (PHEV), and fuel cell vehicles (FCV).

In 2019, Chinese EV manufacturer BYD and Toyota announced cooperation for the joint development of pure electric vehicles. They have agreed to invest in a joint venture company covering pure electric vehicles, designs, R&D, and trade.

According to reports, the new plant will have a total area of 1.97 million square meters. Thus, it is expected to produce electric vehicles jointly developed by Toyota and BYD.

Relevant data on China’s electric car industry

 Top 10 new energy passenger vehicle market sales cities in February

Top 10 new energy passenger vehicle market sales cities in February

The sales volume of the 10 cities accounts for 73.8 percent of the total market sales volume, and Beijing is far ahead in sales volume.

Top 5 vehicles in sales volume of pure electric vehicle market manufacturers in 2019

Top 5 vehicles in sales volume of pure electric vehicle market manufacturers in 2019

In 2019, the market share of the top ten manufacturers in terms of cumulative sales volume is 71.2 percent. BYD, BAIC new energy, and Geely occupy the top three, but Tesla, great wall, and GAC energy are on the rise, up 198.4 percent, 344.4 percent, and 238.2 percent, respectively.

Top 3 market shares for the plug-in hybrid market

Top 3 market shares for plug-in hybrid market

Top manufacturers of plug-in hybrid electric vehicles and their market shares

Top manufacturers of plug-in hybrid electric vehicles and their market shares 

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Author: Zhorea Garcia

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