China to End Tax Exemptions for Certain New Energy Vehicles by 2027
In a significant policy shift, China plans to end vehicle and vessel tax breaks for specific new energy vehicles (NEVs) starting January 1, 2027. This move aims to adjust tax support as the adoption of NEVs continues to surge in the country.
Policy Changes Targeted at Commercial and Hybrid Vehicles
According to a joint statement from the Ministry of Finance, the State Taxation Administration, and the Ministry of Industry and Information Technology, plug-in hybrids, battery electric commercial vehicles, and fuel cell commercial vehicles will lose their tax exemption status. Additionally, the policy halving the vehicle and vessel tax for energy-saving vehicles will also be rescinded.
Battery Electric Passenger Cars Remain Untaxed
Battery electric passenger cars and fuel cell passenger cars are not impacted by this tax adjustment. These vehicles, which lack engine displacement, will continue to be untaxed under China’s current vehicle and vessel tax law. As a result, the largest segment of China’s NEV market will still benefit from zero vehicle and vessel tax.
Impacts on Vehicle Owners
Owners of the affected vehicle types will be required to pay the vehicle and vessel tax on both new and existing vehicles once the changes take effect. The tax rates will be determined by provincial-level governments, with current rates for passenger cars with engine displacements between 1.6 and 2.0 liters ranging from 360 yuan ($53) to 660 yuan annually.
Background and Rationale for the Change
China’s Ministry of Finance noted that the preferential tax policy, initially implemented in 2012, successfully encouraged NEV and energy-saving vehicle purchases. However, with rapid development in China’s NEV industry and over 50% of domestic new car sales being NEVs by 2025, the policy landscape has evolved. The average selling price of plug-in hybrid passenger cars reached 218,000 yuan in 2025, with some models exceeding 1 million yuan, highlighting the high-value nature of these vehicles.
Tax Fairness and Market Penetration
Resuming the vehicle and vessel tax on these vehicles is expected to enhance tax fairness and strengthen the role of taxation in regulating income distribution. The change comes amid record NEV penetration rates, with the China Passenger Car Association (CPCA) reporting a 62.9% penetration rate in May 2026 (source).
Calls for Broader Tax Reform
As NEVs dominate the market, discussions around reforming the road tax system have intensified. Cui Dongshu, CPCA’s secretary-general, recently suggested reforming the road tax system, which is currently linked to fuel consumption. He noted that NEVs, which use public roads without fuel taxes, are generally heavier than conventional vehicles, causing more wear and tear on roads.
Cui proposes a statutory tax based on driving mileage and vehicle weight to address structural imbalances caused by declining fuel tax revenues.
($1 = 6.7891 yuan)
Original Story at cnevpost.com