In essence, consumers acquiring New Energy Vehicles (NEVs) with an invoice amount exceeding RMB 339,000 are obligated to pay the purchase tax. Notably, models supporting battery swap enjoy preferential treatment.
China introduced a vehicle purchase tax exemption for New Energy Vehicles (NEVs) in September 2014, extending until the close of 2023. During this period, consumers purchasing NEVs are exempt from purchase tax, except for a few ultra-luxury models.
Effective January 1, 2024, a new purchase tax policy for NEVs comes into play in China, impacting both consumer choices and automakers’ pricing strategies.
For NEVs purchased between January 1, 2024, and December 31, 2025, they remain exempt from vehicle purchase tax, with the exemption capped at RMB 30,000 ($4,230) per vehicle, as per a June 21, 2023, announcement by China’s Ministry of Finance. For those purchased between January 1, 2026, and December 31, 2027, the vehicle purchase tax will be half the normal rate, with a maximum reduction of RMB 15,000 per vehicle.
The policy continues to support models with battery swap capabilities. When consumers buy NEVs, if the invoice for the car and battery are separate, the taxable price is the ex-tax price of the vehicle body.
Covered by the policy are pure electric vehicles, fuel cell vehicles, and plug-in hybrid vehicles (PHEVs), including extended-range electric vehicles (EREVs).
In China, the standard vehicle purchase tax is 10 percent, as opposed to the conventional internal combustion engine (ICE) vehicles.
Consumers will calculate the tax to be paid using the formula: Amount of tax to be paid = Invoice price / (1+13 percent) x 10 percent. The RMB 30,000 tax exemption implies no purchase tax for NEVs priced up to RMB 339,000.
Examples illustrate the purchase tax for different NEV prices. For an RMB 300,000 NEV, the tax is RMB 30,000, resulting in no purchase tax. However, for an RMB 500,000 NEV, consumers can enjoy a RMB 30,000 exemption and need to pay RMB 20,000 in purchase tax.
Models supporting battery swap are encouraged by China’s policy. When the invoice for the vehicle body and battery is separate, the taxable price is the ex-tax price of the vehicle body.
Nio (NYSE: NIO), a leading advocate of the battery swap model, has partnered with Changan Automobile and Geely Holding, ensuring their vehicles benefit from purchase tax exemptions.
In addition to the purchase tax policy change, new regulations from December impose higher technical requirements for models qualifying for purchase tax exemptions. From January 1, 2024, models entering China’s Ministry of Industry and Information Technology’s NEV catalog must meet new specifications.
These standards include a 30-minute maximum speed of no less than 100 kilometers per hour for pure electric models, a range of no less than 200 kilometers, and a battery energy density of no less than 125 Wh/kg. For PHEVs, the requirements include a battery range of no less than 43 kilometers.
Approximately 90 percent of models meet these standards, with less than 10 percent affected, according to the MIIT. There is a five-month buffer period, allowing consumers purchasing models not meeting the new requirements before May 31, 2024, to still be eligible for purchase tax reductions. From June 1, 2024, models not meeting the new technical requirements will be subject to purchase tax.
($1 = RMB 7.0999)
