As China’s temporary car purchase tax reduction expiry date approaches, there is increasing speculation inside China that an extension of the tax into 2017 or further market support are being considered by the government.
The China Daily has reported that China is likely to extend the favourable purchase tax policy on small engine vehicles to further boost the market’s growth, though it also said that some reform could come to further encourage small and less polluting vehicles.
Some analysts have forecast that the car market in China could slump in 2017 under the combined weight of China’s economic slowdown and the loss of the car purchase tax break on December 31st of this year (car purchase tax applying at 5% instead of 10%). There could also be a rush of sales at the end of the year to beat the deadline.
“The tax policy may help unleash five to six percentage points of growth in the nation’s automobile market,” said Dong Yang, executive vice-president of the China Association of Automobile Manufacturers (CAAM), quoted in the China Daily. “With the extended policy, market growth could reach up to 8 percent, but without it, growth could touch as low as 3 percent.”
CAAM is lobbying the State Council, China’s cabinet, to extend the policy if necessary.
The Chinese central government introduced the tax stimulus measure in October 2015 which halved the tax to 5 percent on purchases of passenger vehicles powered by engines no larger than 1.6L, in response to fears of a sharp slowdown to car demand.