60 Billion Yuan Preferential Purchase Tax for Vehicle Consumption

SHANGHAI, May 24 - On May 23, Premier Li Keqiang hosted an executive meeting of the State Council to further launch a package of measures to stabilise the economy, in an effort to push the economy back onto a normal track and ensure that it operates within a reasonable range. In terms of automobiles, the package aims at promoting consumption and effective investment, with a phased reduction of 60 billion yuan in the purchase tax concerning some passenger cars.

"This (partial reduction of passenger car purchase tax) policy is very powerful," Cui Dongshu, secretary-general of China Passenger Car Association, said that the due to the impact of the pandemic, the current fuel car market is relatively sluggish, hence stimulating consumption is the key to grab back retail losses, "this so-called 'phased reduction' may last until end of this year , but it also depends on the expending of such allowance (60 billion yuan). "

In addition, some senior executives of the China Association of Automobile Manufacturers also said that the "phased" reduction refers to the policy's timeliness, that is, a special arrangement within a certain period of time. Bai Yiyang, researcher of China Merchants Bank International, believes that based on this 60 billion yuan of relief, the purchase tax rate should be reduced to 8% or even lower on the basis of last year's passenger car purchase tax collection of about 390 billion yuan, and net of commercial vehicle, "it will probably exceed market expectations."

"Auto consumption stimulation tool is relatively mature and fruitful." According to the latest research report of Huaxi Securities, this year, raw materials prices continue to rise, and most new energy models and a small number of fuel models have hiked their prices one after another, which suppress part of the demand, that is, more potential consumers hold a wait-and-see attitude. "We believe that this round of subsidy is more powerful than the last round in terms of rousing potential consumers or generating new demand. "

At present, two rounds of relatively large domestic automobile consumption stimulation packages have been implemented. The first round is the purchase tax concession of 5% in 2009 and 7.5% in 2010, coupled with the policy of early retirement subsidy for old cars, old for new services and promoting car sales in rural areas. The second round is purchase tax concession of 5% from October 2015 to 2016 and 7.5% from the end of 2017, overlaid with the policy of early retirement subsidy for old cars.

The stimulus policies have effectively boosted domestic vehicle sales. Data shows that car sales exceeded 10 million and 25 million units in 2009 and 2016 respectively, up 45.5% and 13.7% year-on-year. It is worth noting that both car production and consumption are currently under pressure due to the impact of the pandemic. Data from the China Association of Automobile Manufacturers showed that in April 2022, wholesale sales of narrowly-defined passenger cars were 947,000 units, down 43.1% year-on-year and 47.9% month-on-month; production was 978,000 units, down 41.4% year-on-year and 47.0% month-on-month.

According to the data from the Bureau of Statistics, the total retail sales of automobiles in China reached 3.7 trillion yuan in 2021, an increase of 3.6% year-on-year, accounting for 8.4% of China's consumer spending, a decrease of 0.7 percentage point year-on-year. In the past decade, the proportion of automobile consumption to consumer spending has remained stable between 8.3% and 11.1%, which has played an important role in boosting consumption and economic growth.

"If electric vehicles are still free from purchase tax, and fuel vehicles could enjoy preferential purchase tax that drops from 10% to 5%, each vehicle will enjoy a 6,000 yuan reduction of purchase tax based on the average price of passenger cars of 150,000 yuan. Then the 60 billion yuan tax reduction corresponds to 10 million units of passenger vehicles. If the purchase tax falls to 7.5%, it corresponds to 20 million units." CITIC Securities analysts said.