China seeks to cut tax levied on car purchases

CHINA’S top economic planning body is proposing cutting the tax levied on car purchases by half, according to people familiar with the matter, as the impact of the trade war and a slowing economy drags on demand in the world’s biggest car market.

The National Development and Reform Commission, which also acts as China’s top regulator, submitted a plan to a group of key policy makers to cut the purchase tax to 5 percent from 10 percent for passenger vehicles with engines no bigger than 1.6 litres.

No decision has been made on implementation, they said.

The NDRC did not immediately comment. Cars of that engine size accounted for about 70 percent of the total number of passenger vehicles sold last year, according to the China Association of Automobile Manufacturers.

Chinese car sales are on track for their first annual drop in two decades as the trade row with the US weighs on growth and fuels losses in the stock market. After racking up record sales over the past few decades as China’s emergent middle class bought their first cars, consumers are retreating from big-ticket buys, a pullback exacerbated by the phasing out of a car purchase tax rebate.

The decline is being felt by the world’s top carmakers, with Volkswagen to Ford on the back foot as demand in what has become a key market fizzles.

Should the tax-cut plan go ahead, it could be seen as the latest effort by China to support the $12 trillion (R175trln) economy, which has slowed this year amid the ongoing trade friction. In recent weeks, policy makers have tried to calm volatility in the stock market and acted to bolster private businesses by supporting bond issuance.