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BEIJING/SHANGHAI (Reuters) -China on Wednesday announced an extension of a purchase tax break on new energy vehicles (NEVs), a new pillar of the economy whose muted recovery has seen market watchers calling for more stimulus.
NEVs bought from Jan. 1, 2024 through the end of 2025 will be exempt from purchase tax amounting to as much as 30,000 yuan ($4,168) per vehicle, the Ministry of Finance said in a statement ahead of a broader policy announcement promoting NEV development.
The tax on NEVs purchased between 2026-2027 will be halved, with the reduction not exceeding 15,000 yuan per car, the ministry said.
The current policy allows purchase tax exemption on NEVs – which include all-battery electric vehicles (EVs), plug-in petrol-electric hybrids and hydrogen fuel-cell vehicles – until the end of 2023.
The tax breaks will amount to 520 billion yuan in 2024-2027, Vice Minister of Finance Xu Hongcai said at a press conference.
The announcement follows a June 2 Cabinet meeting during which authorities said they would extend and optimise the tax exemption and study policies to promote NEV development.
The incentives put NEVs, a mainstay of big-ticket spending, on the front burner of a broad-based push to rekindle growth in the world’s second-largest economy, which is losing momentum after a brisk start to the year.
The government heavily promoted NEVs in recent years to curb air pollution, through incentives that supported the rise of local players such as BYD, Li Auto and Nio (NYSE:NIO).
NEV sales suffered a hit earlier this year after the government ended a more than decade-long subsidy for EV purchases, but bounced back after automakers including Tesla (NASDAQ:TSLA) cut prices to defend market share and after authorities extended the purchase tax exemption.
Wednesday’s announcement is the fourth extension. The tax break was initially announced in 2014 and was extended in 2017, 2020 and 2022.
In May, NEV sales rose 10.5% from a month earlier, showed data from the China Passenger Car Association. Sales jumped 60.9% from a year earlier when COVID-19 curbs still roiled auto production and sales.
This month, the commerce ministry announced a nationwide campaign to promote automobile purchases in a major push to shore up demand in the world’s largest auto market.
($1 = 7.1972 Chinese yuan renminbi)
