China's revised NEV purchase tax policy comes into effect

China's revised taxation policy for the purchase of new energy vehicles (NEVs) has come into effect from the start of this year. The current taxation scheme has replaced the tax exemption policy that spared NEV buyers from paying any purchase tax (barring certain ultra-luxury vehicles), which was in place for about a decade. 

According to the revised taxation scheme announced in June last year by China's Ministry of Finance, all NEV buyers can avail a purchase tax-break not exceeding RMB 30,000 ($4,230) per vehicle for two years, starting from January 1, 2024 to December 31, 2025. 

For purchase dates between January 1, 2026, and December 31, 2027, NEV buyers will be only half of the usual purchase tax, but the tax-break shall not exceed RMB 15,000 per vehicle. The standard purchase tax in China for all vehicles (ICE and NEVs) at the time of registration is 10 percent of the vehicle invoice price. 

Thus, for the next two years of 2024 and 2025, Chinese buyers may not pay any purchase tax for NEVs with a selling price of up to RMB 339,000. Further, buyers opting for NEVs with battery swap system can avail additional purchase tax exemptions, as the Chinese policy has always given favored battery swapping model even in the previous taxation regime. 

Interestingly, China's revision of NEV incentivization policies extends beyond purchase tax hikes, as the country announced stringent technical requirements for NEV to qualify for tax cuts. From this year onwards, vehicles will have to meet new regulations to apply for NEV tag under China's Ministry of Industry and Information Technology's (MIIT) catalog.

Accordingly, pure electric vehicles should have a driving range of at least 200 kms per charge and battery density no less than 125 Wh/kg. For plug-in hybrids and EVs with range-extenders, the minimum pure-electric driving range ought to be no less than 43 kms.

Chinese MIIT claims that over 90 percent of the NEVs meet the revised technical standards already. Even then, the government has given a five-month buffer period for manufacturers to comply to the new norms, meaning buyers can still avail incentives for low-end EVs that fall short of the revised qualifications till the end of May.

Last year, China announced a 520 billion yuan ($72.41 billion) NEV tax-cut package for the next four years, which was claimed as the biggest aid of its kind so far to boost clean mobility. It is yet to be seen how the latest revisions in EV incentivization policy affects the NEV sales and their overall adoption in the country. 

(With inputs from CnEVPost.com)