Shanghai Securities News reported yesterday the consumption tax reduction would mainly benefit low-emission vehicles.
Under one set of proposals, the tax for vehicles with one-litre engines or smaller would be lowered to 2 per cent from 10 per cent.
Vehicles with two-litre to 2.5-litre engines and 2.6-litre to three-litre engines, which are among the most widely bought cars, would be taxed at 7 per cent and 8 per cent.
The 10 per cent tax would remain unchanged for vehicles with four-litre engines or bigger.
Another proposal is to eliminate the consumption tax on cars with 1.6-litre engines or smaller.
'Carmakers started urging the government to launch new tax policies last month,' said analyst Zhang Xin at Guotai Junan. 'But at that time, the government was still waiting to see the sales figures for November before making a decision.'
Total mainland vehicle sales slid 14.56 per cent year on year to 685,100 units last month.
The biggest component, passenger car sales, declined 10.28 per cent to 522,800 units, the fourth consecutive monthly drop.
But it remains unclear how aggressive the government will be in the final tax cuts.
'Carmakers usually bring up the most aggressive proposals to the central government, as a way of starting bargaining for the appropriate rates,' Mr Zhang said.
Mainland media said the new vehicle consumption tax would be implemented in the first half of next year. However, Citic Securities analyst Li Chunbo said: 'The exact categorisation of vehicles by engine capacity pertaining to the tax cuts and the exact date for implementation are not yet fixed.
'If the consumption tax cut is less than 5 percentage points, there will not be a strong enough effect to boost small-engine vehicle [sales].'
The government hopes the fuel consumption tax, which takes effect on January 1, will dent demand for big cars and encourage consumers to prefer smaller vehicles.
Minister of Industry and Information Technology Li Yizhong said on Friday the country needed to take tax policy steps to help counter a serious decline in car sales because of the global economic slowdown.
'The vehicle industry has to seek the consent of all government departments,' said Mr Zhang. 'The Ministry of Industry and Information Technology initially agreed to their proposals, but tax affairs are mainly managed by the Ministry of Finance.'
Besides cutting consumption tax, the government may cut the value-added tax on fuel-efficient vehicles, mainland media reported in May.
But that may be difficult.
'Beijing will not make cutting VAT a primary consideration because the central government needs to fund its massive infrastructure projects in the coming years,' said Mr Zhang.
'Also, if the government cuts VAT for the vehicle industry, it has to do the same thing to other industries, such as steel.'
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