China will scrap annual vehicle tax breaks for energy-saving cars and several classes of new-energy vehicles from 2027, extending a gradual withdrawal of incentives. The Ministry of Finance, the State Taxation Administration and the Ministry of Industry and Information Technology (MIIT) said that they would end the half-rate vehicle-and-vessel tax on qualifying fuel-efficient cars alongside the exemption for battery-electric commercial vehicles, plug-in and range-extender hybrid cars, and fuel-cell commercial vehicles. The measures will take effect on January 1, 2027. The ministries said the move would “promote tax fairness and strengthen taxation’s role in adjusting income distribution”, noting that the sales price for plug-in and range-extender hybrid passenger cars averaged CNY218,000 in 2025, with some models priced at more than CNY1 million.
The annual vehicle-and-vessel tax typically amounts to a few hundred yuan for most passenger cars. China has offered either reduced or full exemptions for qualifying energy-saving and new-energy vehicles (NEVs) since 2012. A typical plug-in hybrid owner would pay only CNY300 to CNY400 more a year, an increase which was unlikely to affect purchasing decisions, said Cui Dongshu, Secretary General of the China Passenger Car Association (CPCA). “In the longer term, automotive tax policy will become increasingly market-oriented, steering industry resources towards pure-electric technology,” Cui said. Battery-electric and fuel-cell passenger cars are unaffected because the tax is based on engine displacement.
The move extends the gradual withdrawal of incentives for NEVs. Since January 2026, NEVs have been subject to a half-rate purchase tax after the expiry of the purchase-tax exemption, although trade-in grants of up to CNY20,000 remain available. The China Association of Automobile Manufacturers (CAAM) partly attributed the 23.8% year-on-year decline in first-quarter NEV sales to the policy change and cautious consumer spending. The rollback comes as Chinese passenger-car brands continue to gain ground in Europe. In May, they overtook their Japanese rivals in market share for the first time, according to the latest data from the European Automobile Manufacturers’ Association (EAMA). Meanwhile, the European Commission had prepared anti-subsidy duties on Chinese plug-in hybrids, pending member-state approval, the South China Morning Post reports.
