Summary of Key Points
Effective January 1, 2027, China will abolish two types of vehicle and vessel tax incentives:
1. The policy of halving the tax for energy-saving vehicles (fuel-powered passenger cars with a displacement of 1.6 liters or less and eligible fuel-powered commercial vehicles);
2. The exemption from tax for certain new energy vehicles (plug-in hybrid passenger cars, pure electric commercial vehicles, and fuel cell commercial vehicles).
Affected vehicle owners will see an increase in their tax burdens, but the amount is generally in the range of a few hundred yuan per year, which is a very small proportion of the total cost of using the vehicles. Pure electric/fuel cell passenger cars are not affected by this change as they do not emit emissions.
Which Vehicles Will Be Affected by the Higher Tax?
There are two categories of vehicles that will be impacted:
- Energy-saving vehicles:
- Fuel-powered passenger cars with a displacement of 1.6 liters or less (such as common 1.5L cars);
- Eligible fuel-efficient commercial vehicles (e.g., some energy-saving buses and trucks).
- Certain new energy vehicles:
- Plug-in hybrid passenger cars (including range-extended models, such as the BYD Song PLUS DM-i and Li Auto ONE);
- Pure electric commercial vehicles (e.g., electric trucks and buses);
- Fuel cell commercial vehicles (e.g., hydrogen-powered trucks).
Vehicles Not Affected: Pure electric passenger cars (such as the Tesla Model 3 and BYD Han EV) and fuel cell passenger cars, as they do not emit emissions and are already exempt from the tax.
How Much More Will Owners Have to Pay?
The increase in tax varies by vehicle type and is at most a few hundred to one thousand yuan per year:
- Energy-saving fuel-powered passenger cars: The tax was previously halved; now it will be paid in full. For example, for a 1.5L car, the statutory tax amount in most provinces is 300-420 yuan per year. With the change, owners will have to pay an additional 150-210 yuan (with a maximum increase of 270 yuan).
- Energy-saving fuel-powered commercial vehicles (buses): The tax was previously halved; now it is 480-1440 yuan per year, with an additional payment of 240-720 yuan.
- Plug-in hybrid passenger cars: These were previously exempt from tax; now they will be taxed based on their displacement. For example, a 1.5L car may cost 420 yuan in Beijing and 300 yuan in Shanghai/Guangdong, representing an additional tax of the same amount.
- New energy commercial vehicles:
- Buses: The tax was previously exempt; now it is 480-1440 yuan per year.
- Trucks: The tax is calculated based on weight, ranging from 16 to 120 yuan per ton. For a 10-ton truck, the additional cost would be 160-1200 yuan per year.
Why Are These Incentives Being Abolished?
The main reasons are:
1. Tax fairness: The incentives have been in place for 15 years (since 2012), and long-term differential treatment may affect tax fairness; it is time to return to a uniform taxation system.
2. Achievement of policy goals: The initial incentives were designed to promote the development of energy-saving/new energy vehicles, but these types of vehicles are now widely available (with new energy vehicles accounting for over 30% of new car sales), so some incentives can be phased out.
3. Supporting local finances: Vehicle and vessel tax is a local tax; abolishing these incentives can increase local revenue to support public services.
Will This Have a Significant Impact on Owners or the Market?
The impact is minimal:
- Owner burden: The additional cost of a few hundred yuan per year is equivalent to the cost of one or two meals. For example, for a plug-in hybrid owner, an additional 300 yuan represents less than 1% of the annual vehicle costs (insurance, fuel/electricity, maintenance).
- Market impact: The range of affected vehicles is limited. Experts estimate that in 2026, less than 10% of new cars will still benefit from the incentives, and pure electric passenger cars (the main drivers of the new energy market) are not affected, so there will be no significant market fluctuations.
In summary, this policy change is more of a minor adjustment with little impact on ordinary car owners. It primarily reflects the return of tax policies to a more normal state.