Summary of Key Points
Recently, the Ministry of Finance and other departments issued a notice announcing the reinstatement of consumption taxes on a range of common batteries that were previously exempt from taxation. These include AA/AAA batteries, battery packs for electric vehicles, and solar panel cells, with the tax rate increasing gradually from 2% to 4%. At the same time, new technologies such as sodium-ion and solid-state batteries will continue to be exempt from taxes. The purpose of this policy is to increase fiscal revenue, reduce excessive competition within the industry (known as “involution”), and promote environmental protection. A grace period has been set in place to minimize the impact on businesses.
I. Which Batteries Will Be Subject to Increased Taxes?
The batteries affected by the new tax include those we use daily:
- Mercury-free primary batteries: Such as AA and AAA batteries used in remote controls and button cells. The tax will be 2% starting from September 1, 2026, and increase to 4% in September 2027.
- Lithium-ion batteries: Found in electric vehicles, laptops, and smartphones. The same tax schedule applies as for mercury-free primary batteries.
- Photovoltaic cells: Used in solar panels on rooftops. The tax will be 2% starting from April 2027 and increase to 4% in April 2028.
In other words, the government is implementing a lower initial tax rate to give businesses time to adjust before gradually raising it to the standard rate of 4%.
II. Why Is the Tax Increase Now?
Although batteries were included in the consumption tax regime in 2015, exemptions were granted due to the relatively small scale and weaker technology of the battery industry at that time. Today, the situation has changed:
- China’s battery industry is a global leader (for example, it accounts for more than half of the world's production of electric vehicle batteries).
- However, there is excessive competition (known as “involution”) among companies, leading to low profits and waste of resources.
- Additionally, consumption tax revenue decreased by 3.1% in the first five months of this year, so the government needs to increase its revenue. Moreover, battery production still causes pollution, and taxing these batteries can help promote environmental protection.
Therefore, the reinstatement of taxes aims to ensure that mature industries contribute to fiscal revenue, discourage predatory pricing practices, and encourage more environmentally friendly practices.
III. The Policy Includes Grace Periods and Incentives for New Technologies
The policy is not overly draconian and includes two considerate measures:
1. Grace periods: Photovoltaic batteries will be taxed six months later than other types of batteries because the industry is still recovering from the effects of excessive competition. Gradual tax increases help prevent sudden significant cost increases that could disrupt business operations.
2. Exemptions for new technologies: Sodium-ion, solid-state, fuel cells, and perovskite batteries (used in photovoltaic systems) will be exempt from taxation between 2026 and 2028. These technologies are still in the development stage and require policy support to foster innovation.
IV. Implications for Businesses and the Industry
- Increased costs for businesses: Taxes are based on sales revenue, so a 2% tax on a battery costing 100 yuan means an additional 2 yuan in cost.
- Options for businesses: They can either pass on the increased costs to consumers by raising prices or face potential elimination if they cannot absorb the extra expenses. This process may help eliminate weaker companies and allow only the more competitive ones to survive.
- Fiscal benefits: The consumption tax revenue from the battery industry is expected to increase significantly, potentially reaching tens of billions of yuan, which could compensate for the decline in revenue this year.
V. Will It Affect Ordinary People?
The impact on ordinary people will be minimal:
- For everyday batteries: An increase of 2% on a 1-yuan battery means only an additional 0.02 yuan in cost.
- For electric vehicles and smartphones: Battery costs account for about 30% of the price of these products. If the tax on battery packs increases by 2%, the overall price might rise by a few hundred yuan (for example, a car costing 100,000 yuan could see an increase of 200-300 yuan). However, since there is a grace period, companies will gradually adjust prices.
- For solar panels: The installation cost for household use may increase slightly, but the impact is limited, especially considering that photovoltaic batteries are taxed later than other types of batteries.
Overall, the changes will not be very noticeable to consumers. However, the industry will become more competitive and stable, and fiscal revenue will improve. This policy serves multiple purposes by using taxation as a tool to regulate the industry, support new technologies, and boost fiscal performance.