Simply put, consumers who purchase NEVs with an invoiced amount exceeding RMB 339,000 must pay input tax. Preference will be given to models with battery replacement.
(Image credit: CnEVPost)
China has implemented a tax exemption policy for new energy vehicles (NEVs) from automobile purchase tax since September 2014, and until the end of 2023, consumers who purchase NEVs will not be subject to purchase tax, except for a few ultra-luxury models. No need to pay.
From January 1, 2024, China’s new purchase tax policy on NEVs will come into effect, impacting consumer purchasing decisions and automakers’ pricing strategies.
According to the announcement on June 21, 2023, NEVs purchased between January 1, 2024 and December 31, 2025 will continue to be exempt from vehicle purchase tax, but the exemption amount will be 1 The price will not exceed 30,000 yuan ($4,230) per unit. According to the Ministry of Finance of China.
For NEVs whose purchase date is between January 1, 2026 and December 31, 2027, vehicle purchase tax will be charged at half the regular tax rate, and the tax reduction will not exceed 15,000 yuan per vehicle.
This policy continues to provide additional support for models that support battery replacement. When a consumer purchases a NEV, if there are separate invoices for the vehicle and battery, the taxable price will be the tax-excluded price of the vehicle itself.
NEVs covered by this policy include pure electric vehicles, fuel cell vehicles, and plug-in hybrid vehicles (PHEVs), including extended range electric vehicles (EREVs).
In China, the standard car purchase tax is 10%, and this is the rate that conventional internal combustion engine (ICE) cars currently face.
Consumers will receive a quote for their car that includes the 13% Value Added Tax (VAT) rate. This means that a consumer purchasing her NEV in 2024 and 2025 will need to calculate the tax liability according to the following formula:
Amount of tax paid = Invoice price / (1+13 percent) x 10 percent.
With the tax exemption for up to 30,000 yuan, consumers will no longer have to pay input tax when purchasing new energy vehicles with a selling price of up to 339,000 yuan.
Below is a simple example showing the acquisition tax that a car buyer has to pay for different prices of NEVs. To reduce complexity, the example price below does not include his VAT.
If the non-VAT price of the NEV is RMB 300,000, the purchase tax will be RMB 30,000. According to the current policy, consumers will receive a tax exemption of 30,000 yuan, eliminating the need to pay car purchase tax.
For a NEV with a selling price of RMB 500,000, the tax payable is RMB 50,000. According to the current policy, a consumer can receive a tax exemption of 30,000 yuan, and the car purchase tax only requires him to pay 20,000 yuan.
Chinese policy has always encouraged the battery replacement business model, and the new input tax policy is no different.
When a consumer purchases a NEV, if there are separate invoices for the vehicle and the battery, the taxable price will be the tax-excluded price of the vehicle.
If the car model does not support battery replacement, the tax amount will not be reduced even if the car company charges you separately for the battery and the car itself.
Previously, to lower the barrier to purchase, some car companies offered consumers separate loans for the body and battery, even if their vehicles did not physically support battery replacement. I was allowed to do that. This trick will not lower the taxable value of your vehicle.
According to the Chinese government’s June 2023 announcement, NEVs that support battery replacement must meet technical standards and requirements, and NEV manufacturers can provide battery replacement services to users themselves or third-party. The Ministry of Finance should be able to provide such services by contracting with the Ministry of Finance.
Nio (NYSE:NIO) is currently a leading proponent of the battery swap model and has already partnered with Changan Automobile and Geely Holding to co-develop battery swap-enabled vehicles.
This means that not only Nio’s vehicles, but also those of our partners that utilize the battery exchange network, will be eligible for more purchase tax exemptions. This will also be available to several other Chinese automakers that offer vehicles with replaceable batteries.
In addition to input tax policy changes, China announced new regulations in December that impose higher requirements on the technical specifications of vehicles eligible for input tax exemption.
From January 1, 2024, models applying for registration in the China Ministry of Industry and Information Technology’s (MIIT) NEV model catalog eligible for automobile purchase tax reduction will need to meet new technical requirements.
For pure electric models, the maximum speed for 30 minutes must be at least 100 kilometers per hour, the range must be at least 200 kilometers, and the battery energy density must be at least 125 Wh/kg.
New requirements for PHEVs, including EREVs, include a minimum battery range of 43 kilometers and a number of other energy consumption-related conditions.
According to MIIT, approximately 90% or more of the models meet these criteria, meaning less than 10% will be affected.
The policy provides for a five-month buffer period. Consumers who purchase models that do not meet the latest technical requirements through May 31, 2024 will continue to receive purchase tax relief. From June 1, 2024, models that do not meet the new technical requirements will be subject to input tax.
(1 dollar = 7.0999 RMB)
Nio welcomes China’s move to extend tax breaks on NEV purchases