China Will Increase Tax On High-Emission Vehicles

By PATRICIA JIAYI HO and TERENCE POONAugust 14, 2008; Page A10

BEIJING -- China will raise the consumption tax on high-emission vehicles and cut the levy on low-emission vehicles as part of efforts to conserve energy and fight pollution, the Ministry of Finance said.
Analysts don't expect the tax changes to have much of an impact on auto sales or emissions in the near term, as the vast majority of vehicles sold in China have small engines.
From Sept. 1, the consumption-tax rate on vehicles with engine sizes between three and four liters will rise to 25% from 15%, while the tax on vehicles with engines bigger than four liters will double, to 40%. The consumption-tax rate on vehicles with engine sizes of one liter or lower will fall to 1% from 3%, the ministry said on its Web site.
CSM Worldwide analyst Yale Zhang said only about 50,000 locally made cars sold annually have engines with a size above three liters, amounting to less than 1% of the six million vehicles he expects to be sold in China this year. Only one locally made vehicle, Toyota Motor Corp.'s Land Cruiser sport-utility vehicle, has an engine bigger than four liters, he said.
The tax likely will have more of an impact on imported vehicles, such as Daimler AG's Mercedes-Benz S-Class, BMW AG's 7 Series and Audi AG's Q7.
Imported vehicles cost between about 700,000 yuan and 1.5 million yuan, or roughly $100,000 to $220,000, Mr. Zhang said.
But even then demand may not be dented much by the higher tax rates, said Charles Huang, director of China research at BNP Paribas. "People who buy these cars are rich people and government officials. They aren't as price-sensitive," he said.
The consumption-tax cut on low-emission vehicles also isn't likely to boost sales of cars with a one-liter or smaller engine, as such cars typically cost between 30,000 yuan and 40,000 yuan, Mr. Zhang said. The new tax rates will amount to savings of between 600 yuan and 800 yuan.
Write to Terence Poon at terence.poon@dowjones.com