Small Cars Still Enjoy Purchase-Tax Cut

The State Council decided to extend the purchase-tax policy for cars with 1.6-liter and smaller engines to the end of 2010. The discount is 7.5% and the tax rate rises by 2.5%. Some automakers which mainly produce small cars with 1.6-liter and smaller engines believed that the extension of the purchase-tax policy was good news, according to Dayoo.com and Information Times.

Compared with the 5% rate in 2009, consumers will pay the increase of 2.5%. However, the automobile manufacturers said that the change would not make a big difference.

　　The influence of tax policy is limited.

According to sources, Chinese government issued the preferential policy of purchase-tax cut on March 1 2009. In accordance with the policy, the purchase tax rate is 5% for the cars with 1.6-liter and smaller engines from January 20 to December 31 of 2009. The tax rate rises by 2.5% according to the new policy.

Some automakers which produce small vehicles told reporters that "for the people who are determined to buy a car, they will not pay too much attention to a slight increase of the tax rate". Since the price of small cars is not high, consumers will not have to pay much more money for the increase of tax rate.

The executives of BYD Auto Sales Co., Ltd. said that the extension of purchase-tax discount was good news, according to the Information Times. A slight increase in the tax rate will not have strong impacts. The source said, “Consumers care about fuel efficiency, the quality of engine and other factors. They will not give up the purchase plan of a car due to a modest increase of the tax.”

When buying an 80,000-yuan car, consumers have to pay for an increase of 1819 yuan. Let's take BYD F3 sedan for example. The price of the platinum edition of BYD F3 with 1.6-liter engine and automatic transmission system is 80,000 yuan. In March 2009, the purchase tax is 3636 yuan in accordance with the 5% rate. According to the new policy, the rate is 7.5% and the purchase tax is 5455 yuan. Compared with the practice in 2009, consumers have to pay 1819 yuan more.

　　Prospect: Preferential policies for small cars may end in 2011.

In fact, two programs of purchase tax were supported by the industry before the final plan came out. As to the first program, the preferential policies will continue in 2010 and consumers will pay different sum of money based on the volume of auto engines. A low-emission car enjoys a greater amount of purchase tax concessions.

Another tax program demonstrates that purchase-tax concession may vary according to the fuel-consumption level of a car.

In this regard, Xiang Hansong believed that the current policies which set the 1.6-liter as a single standard are not scientific enough. Although the operation of the preferential policies is quite easy, the method is not rational. Preferential policies may be a temporary option. By 2011 the policies will come to an end and the government may implement a 10% tax rate. At that time, it is possible to impose purchase tax according to the engine volume.

In addition, Dr. Jiang Haichao, the Associate Professor of Business School of the Hunan University of Technology, believed that while auto consumption had become the main force driving economic growth, government would issue new policies to inhibit the overheated development when the economy reaches a certain degree of stability. He believed purchase tax concession for small cars is not "a long-term strategy." (Translator: Qinghua/Hanxin)

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