【SMM Analysis】 New Consumption Tax on Lithium Batteries and Its Impact on the Recycled Resource Market

Announcement No. 20 of 2026 has officially landed, clarifying that China will resume the collection of consumption tax on lithium-ion batteries from September 1, 2026. The policy adopts a tiered tax rate mechanism, with a transition period from September 2026 to August 2027 during which the consumption tax rate will be applied at 2%; starting from September 1, 2027, the rate will be officially raised to 4%. The taxable scope of this consumption tax is restricted to the battery cell production, commissioned processing, and import stages. Scrap battery cells, dismantled black mass, recycled lithium, nickel, and cobalt salts, and other intermediate lithium battery recycling products are not taxable categories and do not require direct payment of the consumption tax. From a practical industry standpoint, this new consumption tax policy has a structural impact on the lithium battery recycling sector. The much-discussed tax deduction rules face extremely strong practical restrictions and cannot alter the industry's existing raw material supply structure or mainstream production landscape.

In terms of tax deductions, the policy's deduction thresholds are stringent. It only allows deductions of upstream consumption tax for enterprises that externally purchased fully taxed new finished battery cells for the continuous production of new battery cells, based on the actual quantity used in production. All recycled raw materials and recycled metal materials, including scrap retired battery cells, defective products from battery factories, production off-cuts, domestically produced dismantled black mass, and imported recycled black mass, are not within the scope of the tax deduction list. Meanwhile, considering domestic import regulatory rules, overseas scrap battery cells are prohibited from entering China, and only compliant recycled black mass can be imported normally. All mainstream hydrometallurgical recycling production pathways in the industry lack tax deduction channels, and the deduction policy essentially has no substantive enabling effect on the lithium battery recycling track.

Currently, China's supply structure of recycled raw materials for lithium batteries is stable, with core sources mainly consisting of production scrap and defective products from battery factories. The large-scale retirement cycle for new energy vehicle power batteries has not yet arrived, and imported recycled black mass serves only as a supplementary market source. After the full implementation of the consumption tax, new rigid tax costs are added to the battery cell production stage. With the lithium battery industry currently facing overcapacity and fierce market competition, battery cell enterprises find it difficult to fully pass on the new tax burden to downstream vehicle, energy storage, and end-use markets. Cost pressure is continuously shifted upward to cathode materials and lithium chemicals, and is further transmitted to the lithium battery recycling raw material market. Compared to producing virgin battery cells, using recycled raw materials such as used battery cells and black mass carries a clear tax burden disadvantage. Recycled raw materials themselves are not subject to consumption tax, but the newly produced battery cells they yield are fully subject to consumption tax upon leaving the factory, with no channel for tax deduction, creating a fixed implicit tax disadvantage. This cost difference will become the core bargaining basis for downstream battery cell enterprises when purchasing recycled raw materials, continuing to suppress the upside room for used battery cell and black mass prices in the short term. The raw material market will be dominated by consolidation and bargaining, making it difficult to trend upward.

The new consumption tax policy has a differentiated impact on the lithium battery second-life application industry, with pronounced segmentation among segments. Enterprises solely engaged in sorting used battery cells and reassembling them into energy storage packs, without cell repair or remanufacturing, do not participate in the taxable production stage of battery cells, and their overall operations are unaffected by the consumption tax policy. If an enterprise opens, repairs, and repackages used battery cells into new individual cells for external sales, such activity constitutes taxable production, and the relevant products must pay consumption tax upon factory delivery as per the policy.

The industry's medium and long-term development logic and short-term market trends have diverged significantly. After the consumption tax rate is raised to 4% in 2027, production of virgin battery cells will bear rigid tax costs over the long term, while recycled lithium, nickel, and cobalt raw materials will not bear additional consumption tax, and the cost advantage of recycled raw materials will continue to stand out. In the future, as China’s power batteries gradually enter a concentrated decommissioning cycle, provided that recycled smelting capacity does not suffer from severe surplus, the market value center of recycled resources such as used batteries and black mass will steadily rise. Overall, the long-term valuation logic for recycled lithium battery resources hinges on the permanent cost difference resulting from the tax added at the virgin battery cell production stage.

Meanwhile, if tax authorities subsequently issue supplementary documents adjusting the scope of tax deductions, it will directly reshape market expectations. Factors such as the rapid expansion of sodium-ion battery capacity, concentrated commissioning of new recycled smelting capacity, and wild swings in nickel, cobalt, and lithium chemical prices will all cause fluctuations in the price trends of lithium battery recycling raw materials.