China to Raise Tax on Smaller Cars to 7.5% Through 2017: Sources
Vehicles budge along a road in Shanghai, China.
Photographer: Tomohiro Ohsumi/Bloomberg
China will raise the sales tax on puny cars to 7.Five percent, curbing an incentive that has propped up the auto industry, which is heading for its 26th consecutive annual expansion, according to people familiar with the matter.
The tax rate is less than the ten percent originally scheduled to take effect from January. However, it is an increase from the five percent rate introduced in October 2015. Shares of carmakers fell.
“This is worse than the market’s expectation of keeping the tax at five percent, so some people are disappointed,” Ka Leong Lo, a Hong Kong-based analyst at Kim Eng Securities Ltd., said by phone. “Some others simply use this as an excuse to reduce their exposure in the auto sector because they have made profits this year on auto stocks.”
BAIC Motor Corp. and Geely Automobile Holdings Ltd. each declined more than four percent as of Trio:25 p.m., while Guangzhou Automobile Group Co. dropped as much as Trio.Two percent. Good Wall Motor Co., China’s largest SUV maker, fell as much as Two.Five percent.
China’s government halved the levy on purchases of vehicles with engines up to 1.6 liters last year after lobbying from the nation’s auto association as request waned along with the economy. Auto sales promptly rebounded and surpassed last year’s tally in November, clinching a 26th consecutive annual build up.
Economic Linchpin
Carmakers had lobbied for the lower levy to be made permanent, citing concerns sales would slump next year after consumers brought forward their purchases. The government cited the industry’s status as a linchpin of the world’s second-biggest economy when introducing the incentive last year.
Consumers bought 21.1 million passenger vehicles in the very first eleven months of the year, more than the 20.6 million units purchased in all of 2015, according to the China Passenger Car Association. The last time China’s car market shrank was 1990.
Sales growth may moderate to three percent in 2017, from about fifteen percent this year, Lo said in an e-mailed report.
Geely posted the fastest sales growth among major local automakers with its deliveries almost doubling to 102,422 units in November, while Guangzhou Auto and Good Wall recorded sales increases of more than thirty percent last month.
— With assistance by Ying Tian, and Steven Yang
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