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China Considers Tax Cut to Boost Auto Market

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China is considering a proposed tax cut to increase car sales and breathe new life into the country’s auto market. The proposed tax break would reduce the current vehicle purchase tax (10 percent) to 5 percent. One stipulation of the tax cut is that it applies only to vehicles with 1.6-liter or smaller engines. “This is definitely good news and a message the market has been waiting for,” said Bankhaus Metzler analyst Juergen Pieper.

Though China currently has the largest auto market in the globe, it’s common knowledge that the country’s car sales have suffered as a result of a two-decade-long trade war with the U.S. China’s current decline in sales has many factors. Recently, China increased the levy on American-imported vehicles to 40 percent, as part of the trade friction. Though, it enforced a lower, 15-percent levy on other imported vehicles. The modified levies helped trigger a reduced demand for imported vehicles, while fostering price confusion for auto consumers.

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These hefty fees have exacerbated the current sales slump in China’s car market. Back in September, dealerships reported a 13-percent decrease in passenger-car sales, which translates to just 1.9 million units sold. The first nine months of this year manifested just a 1.1-percent decrease, by comparison. The industry also faces two other obstacles in regaining its vitality: the growing popularity of EVs and stricter emissions tests.

Though the Chinese government has yet to release the full details of the proposed tax reduction, it promises to be a positive step in the right direction. We anticipate more news in the near future, as the country seeks to increase its car sales.

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News Source: Bloomberg