A forthcoming readjustment in consumption tax in China will soon raise the tax rate of a 3.0L car from 8 percent to 12 percent, which will surely discourage the purchase of luxury cars, the Beijing Daily reported Tuesday.

According to the circular issued in mid-March by the Ministry of Finance and State Taxation Administration, a readjustment in consumption tax will start from April 1, involving tax rate increase of luxury goods including limousines, yachts, golf balls and clubs and high-end watches as well as wooden disposable chopsticks and wooden flooring.

There has been no consumption tax readjustment for 12 years.

Currently, China imposes consumption tax at a unified rate of 8 percent upon all cars with discharge volume above 2.2 liters. But after April 1, the rate for cars between 2.0L and 2.5L will be raised to 9 percent.

The consumption tax rate for 2.5L-3.0L, 3.0L-4.0L and above 4.0L will be lifted to 12 percent, 15 percent and 20 percent respectively, according to the circular.

In response to the anticipated consumption tax readjustment, the price of imported luxury cars in Shanghai has risen by 150,000 yuan (about 18,500 U.S. dollars).

The tax readjustment, on the other hand, encourages the purchase of cars with low discharge volume. The tax rates for cars below 1.0L and cars between 1.5L and 2.0L remain unchanged, and that for cars between 1.0L and 1.5L even drops 2 percentage points.

As to a 1.3L car selling 40,000 yuan (5,000 U.S. dollars), the tax readjustment will help consumers save about 600 yuan.

When a customer wants to buy a 2.4L car with a price of 200,000 yuan, he will have to pay 2,000 yuan of tax additionally.

The tax readjustment will even impose a larger impact upon sales of off-road vehicles, which usually need more gasoline.

China's current consumption tax rate upon off-road vehicles above 2.4L is 5 percent. But after April 1, the rates for 2.5L-3.0L, 3.0L-4.0L and above 4.0L vehicles will be raised to 12 percent, 15 percent and 20 percent respectively, the same as that of sedans.

As most cars sold in China last year were cheap cars below 1.5L, the tax readjustment will not affect the booming Chinese car market greatly, the newspaper said.

The tax change, which will be conducive to domestic car market restructure, will not prevent cars from entering ordinary families in the country, and will encourage the production and consumption of energy-saving cars.

China's auto manufacturing has increased by a million vehicles in each of the last five years, according to statistics. Last year, the country produced about 6.2 million units compared to less than 150,000 units in 1978 when China started reform and opening-up.

Source: Xinhua