China’s Ministry of Finance and State Taxation Administration recently announced a significant adjustment to the consumption tax policy for ultra-luxury cars, set to take effect on July 20. This move, approved by the State Council, marks a new era in China’s tax regulation of high-end auto consumption.
One of the key changes is the reduction of the tax threshold for ultra-luxury vehicles. The retail price benchmark for levying consumption tax has been lowered from 1.3 million yuan to 900,000 yuan, excluding VAT. This change means that a wider range of high-end vehicles, especially those priced between 900,000 yuan and 1.3 million yuan, will now be subject to taxation, potentially impacting the core offerings of many luxury car brands.
Additionally, the new policy outlines tax rules for different powertrain types for the first time. Battery electric vehicles (BEVs), fuel cell vehicles (FCVs), and other new energy-powered vehicles will now be included in the tax net, addressing a regulatory gap. The tax treatment varies by powertrain, with ultra-luxury BEVs and FCEVs only taxed at the retail stage, while traditional internal combustion engine vehicles will be taxed at both production/import and retail stages.
The policy also extends benefits to the second-hand luxury car market by exempting consumption tax on used ultra-luxury vehicles, regardless of their original sale price or registration date. A used car is defined as one that has completed registration and is traded before reaching mandatory scrappage age, aiming to stimulate activity in the pre-owned high-end car segment.
Furthermore, the policy tightens rules on the retail tax base by calculating consumption tax based on the full transaction price, including any additional fees charged to buyers off-invoice. This ensures a comprehensive and enforceable tax base to prevent underreporting.
Imported vehicles will also adhere to the 900,000-yuan threshold to maintain policy consistency, with both imported and domestically produced vehicles taxed under the same standards.
This comprehensive policy adjustment reflects China’s efforts to steer high-end auto consumption towards a more sustainable path using tax mechanisms. The inclusion of NEVs and production-stage exemptions highlights the government’s support for technological advancement and green mobility. Removing tax from used car sales promotes resource circulation and secondary market activity.
With the new rule taking effect on July 20, the luxury car market is expected to see ripple effects on pricing strategies, sales structures, and consumer decisions. High-end models priced between 900,000 yuan and 1.3 million yuan, as well as premium NEVs, are likely to bear the brunt of these changes. Industry players and consumers must quickly adapt to the evolving tax landscape to navigate the shifting market dynamics.
